VIII. Read and discuss the following texts: Monetary policy: The nbu further reduces the discount and reserve requirement rates

In order to stimulate long-term crediting, including investment projects, the NBU increased the period of commercial bank refinancing from 180 to 270 days. Moreover, on July 5 the discount rate was further reduced from 10% to 8% p.a. These measures stimulated a demand for NBU refinancing funds, and in July the total amount of commercial bank refinancing through quantity tenders reached UAH 315.1 m compared to UAH 7.1 m in June. However, the quantitative significance of this instrument of monetary policy remains low.

On July 8 the reserve requirements were further reduced. The NBU set the reserve rate for demand deposits in national currency to 10% and to 12% for foreign ones. The NBU also reduced the requirements on time deposits in foreign currency to 8-10%. Still, the reserve requirements on national currency deposits are much lower, creating for these deposits more favourable conditions. Currently the share of deposits in foreign currency constitutes approximately one third of total deposits, having steadily reduced from the maximum of 45% in January 2000.

The July consumer prices maintained a downward-sloping dynamic: inflation was -0.9% yoy, despite a fairly high growth of the monetary base (47.2% yoy). The Ministry of Economy and European Integration revised its inflation forecast from 9.8% down to 3.5 to 6.5% yoy depending on the municipal tariff policy during the rest of the year.

Financial markets: Although the amount of bad credits has decreased, it is still quite high

Banking sector. During the first half of 2002 the Ukrainian commercial banks reduced the share of bad credits from 5.8% to 5.6%. According to NBU Chairman Volodymyr Stelmakh, the total share of bad, suspicious and prolonged loans amounts to 15% of the credit portfolio, significantly higher than internationally accepted. Although the NBU actively tries to involve the banks into sharing information through its database of bad debtors, they are reluctant to do so and only 60% of all banks became members of this system. According to the Association of Ukrainian Banks, the majority of the big banks is not willing to disclose information to the state and hence did not join the database. A possible solution could be the creation of an independent non-state database.

Text B

Bank activity bases concerning automation of electronic payments

A modem period of market economy formation is characterized by transition to the new economic model, main position in which is taken by the information technologies, based on the communication facilities and facilities of treatment and saving information.

The important role in the processes of worldwide informatization of society belongs to the bank institutions.

Banking system of Ukraine - one of the most important elements of its financial system. As well as all economy of Ukraine, the banking system today goes through cardinal changes. Such changes affect on structural and functional parts of banking system. Changes are embodied in the banking legislation, which development is carried out on the basis of international experience, experience of economic reforms in Ukraine, modem views about nature and destination of bank institutions.

Economic nature of banks express in their specific function: to play the role of the special financial intermediaries at the economic market. In such role the banks attract free money facilities, which release in the process of economic activity of one subjects - states, economic units, individuals- and are given on the terms of material well-being, returning, limitation by time, payment obligations and orientation on a rental basis to other.

Namely banking system accumulates an enormous fund of money facilities both in the cash and cashless form.

Modem banking system of country proposes various services to its clients: starting with the traditional deposit-loan and cash-cashless operations, that are basic in bank activity, ending with the newest forms of cash-credit and financial instruments, that are used by the bank institutions (leasing, factoring, trust and in.). The banking system of Ukraine consists of the National bank of Ukraine and other banks that created and work on territory of Ukraine.

In the Law of Ukraine "About banks and bank activity" are defined, in legal form, general term and condition of bank creation and activity.

The National bank of Ukraine directs and regulates banking system of Ukraine; at the same time it is its main element. Constitution of Ukraine (p. 99, 100), Law of Ukraine "About the National bank of Ukraine" and other normative acts determine legal position of NBU.

The National bank of Ukraine is a central bank of Ukraine, the special central organ of state administration. He pursues unique state policy in sphere of money circulation, credit, monetary unit stabilization, organizes interbank transactions, co­ordinates activity of the banking system on the whole.

The National bank acts for state interests in relationships with the central banks of other countries, in relationships with the international banks and other financial institutions, where intergovernmental collaboration is foreseen at level of central banks.

A structure of the National bank is built on principle of centralization with the vertical submission. The central management, branches (territorial offices), clearing houses, mint, the State treasury of Ukraine, the Central depository, specialized enterprises, bank educational establishments and other structural units and subsections, necessary for providing activity of the National bank enter to the system of the National bank.

The National bank and his regional offices carry out the supervision after activity of other banks that operate on territory of Ukraine.

A National bank of Ukraine as a subject of legal relationship has the specific right - right for initiation of bill. It should be noted that for execution of its administrative-control functions the National bank of Ukraine issue normative-legal acts on the questions, related to its authority, such acts are obligatory for the organs of state authority and organs of local self-government, banks, enterprises, organizations and establishments regardless of forms of property, and also for the physical persons. The National bank sets common rules of bookkeeping in banks on the base of complex automatization and computerization. Normative acts of the National bank are issued in the form of decree of the National bank Board of Directors as well as in form of instructions, regulations, rules approved by the decree of the National bank Board of Directors. They cannot conflict with the laws of Ukraine and other legislative acts of Ukraine and have not retroactive force, except for the cases when they mitigate or abolish responsibility by law. Normative-legal acts of the National bank are subject to the obligatory state registration in Ministry of Ukraine justice and go into effect according to the legislation of Ukraine. The normative-legal acts of the National bank can be appealed according to the legislation of Ukraine.

There are different types of banks, which differ by the form of property, functions, organizational structure. By form of property the banks divide into state, co-operative, joint stock. Depending on operations, which they execute - universal and specialized. By the organizational structure: banks that have a wide network of branches and banks that have not them. The law of Ukraine «About banks and bank activity» defines types of banks operations. Such activity, namely accumulation and deposit of money and credits; realization of transactions according to the instructions of clients, banks-correspondents and maintenance of their accounts, issue of payment documents and securities (drafts, letters of credit, bills of exchange, shares, bonds and others); purchase, sale and saving of payment documents, securities, and operations with them, issue of warrants and other obligations for the third persons, that suppose their implementation in the money form, purchase and sale of the currency. Economic independence is the main principle of banking activity that means economic responsibility of bank for the results of its activity. The economic independence foresees freedom banks funds and attracted resources management, free choice of clients and depositors, dispose of the bank incomes. Basic function of banks it's intermediation in payments between some independent economic units. Transactions between the clients of the same bank are carried out through operations on their accounts, without use of the bank's correspondent account. In other cases bank, which executes the order of its client to do that or other bank transaction, forced to enter into relationships with other bank, which maintains his contractor. Thus, before the clients of banks will be able to perform the payments, in the cashless order their banks must pay each other. It should be noted that if only the system of interbank non-cash settlements did not exist, the banks would have been to pass to each other a cash on hand, that is transport a money from bank to bank. However in such case the interbank payments would have carried out enough long and the operations would have been too risky. General regulation of interbank payments organization and their form are determined by the decree of the National bank of Ukraine Board of Directors from 27 December 1999. 621 "About adoption of Instruction about the interbank payments in Ukraine". Under the mention document, interbank payments - it is non-cash settlements between banks that conditioned by maintenance of clients payments or by the own obligations of one bank before other. The interbank payments can be carried out:

• through the system of electronic payments of NBU - payments are conducted with application of electronic facilities of acceptance, transmission, treatment and defense of information. System of electronic payments - it is a complex of hardwares, intended for implementation of interbank payments between its participants;

• through the own interbank payments system -transactions are conducted through technical complex with own means of information protection, which is exploited by bank or union of banks and carries put the payment consideration between establishments of this bank (union) and other bank institutions out the scopes of the system of electronic payments;

• through the direct correspondents relations between banks.