By KYIV. Nov 27 (Interfax-Ukraine) – The results of the first stage of assessing resilience of the 20 largest Ukrainian banks with more than 90% of the assets of the banking system confirmed the expectations of the National Bank of Ukraine about the proper assessment by banks of the quality of loans and allow the restoration and introduction of new regulatory requirements for them, the regulator said in a statement on its website.
“As a result of assessing the quality of assets, the total adjustment to credit risk amounted to about 1% of its volume according to banks. Thus, most banks adequately assess the potential losses of the loan portfolio and reflect prudential and financial reserves for loan depreciation,” the NBU said.
The regulator said that the second and third waves of assessing banks resilience are ongoing, their completion is scheduled for December 2023.
“The preliminary results of assessing banks resilience are optimistic: increased requirements for capital adequacy standards may arise only for a few institutions, most of which already have a sufficient capital reserve, including through accumulated income,” the regulator said.
In its opinion, the banking sector as a whole has adapted to working in conditions of full-scale war and is showing clear signs of growth. According to the Banking Sector Review for the third quarter, corporate lending is resuming after the decline caused by the Russian invasion, and retail lending is growing in all segments. Banks maintain high profitability indicators, ensuring further capital growth, and the growth of their capital will continue, despite the expected increase in the bank profit tax rate, the NBU believes.
“Taking into account the preliminary results of the assessment of banks resilience and the current state of the sector, the National Bank is restoring previously suspended regulatory requirements for banks and introducing new ones,” the central bank said.
In particular, from December 29, 2023, banks shall take into account 100% of operational risk in capital adequacy standards (now 50% is taken into account) and deduct 100% of non-core assets from capital (now 75%).
From January 1, 2024, high-quality liquid assets when calculating liquidity coverage ratio (LCR) will be able to include no more than 60% of funds in correspondent accounts with other banks instead of the current 80%.
By January 1, 2024, banks shall develop internal documents regarding the ICAAP (the Internal Capital Adequacy Assessment Process), and by May 31, 2024, submit reports on the ICAAP in test mode.
Next year, it is also planned to restore the determination of the amount of operational risk based on the updated annual financial statements for 2021-2023, the NBU added.
In addition, by October 1, 2024, banks shall update and submit plans for resumption of activities to the regulator.
The National Bank noted that these requirements meet Ukraine’s obligations to implement the norms of European Union legislation regarding capital adequacy and liquidity of financial institutions, as well as the Basel recommendations.
According to NBU estimates, taking into account the preliminary results of assessing banks resilience and the current state of the system, the existing capital reserve of most banks is sufficient to comfortably fulfill the listed requirements, despite the expected introduction of a temporary additional tax on bank income. Until banks comply with these requirements, restrictions on income distribution will remain in place.
“In the future, taking into account the state of the banking system and the results of the sustainability assessment, the timing and plans for activating capital buffers (conservation, systemic importance, systemic risk, counter-cyclicality) will be determined. For further harmonious and sustainable development of the sector, banks should take into account the results of the resilience assessment and plans for the implementation of regulatory requirements and the advisability of updating them,” the regulator said.
