To revive the market for domestic government bonds, the National Bank is now considering extending the period for taking into account risk-weighted foreign currency government bonds with a coefficient of 0.5 for calculating capital adequacy standards. The NBU reported this in its letter No. 22−0005/253399 dated April 2, 2024, which is dedicated to the introduction of a new capital structure for banks.
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What the NBU is working on
The regulator is also working on the requirements for the formation of capital buffers for banks, and will inform the wards about them six months to a year before implementation.
“As for the activation of capital buffers, the relevant decisions will be made by the National Bank taking into account the operating conditions of the banking sector and ensuring macroeconomic stability. The NBU will inform banks about the start date of the formation of conservation buffers, systemic importance and systemic risk no later than six months before the introduction of the corresponding capital buffer, a countercyclical buffer no later than 12 months,” says the National Bank document.
In it, the regulator also reminded that a bank’s failure to comply with capital buffers does not affect the assessment of compliance with minimum/increased capital adequacy standards and, accordingly, does not provide for the application of enforcement measures.
“In the event of a bank’s failure to comply with capital buffers, the bank is required to conclude a contract with The National Bank has a written agreement aimed at gradually achieving the established buffer values, including by accumulating net profit and temporarily stopping its distribution,” the NBU recalled.
The National Bankers noted that according to the results of a recent stability assessment, only 5 banks have a higher than minimum level of capital adequacy standards and only 3 of them have the risk of completely losing capital over a three-year horizon.
“These five banks are preparing programs capitalization and restructuring to achieve capital adequacy or maintain it at the established level. Some of them already have capital adequacy levels higher than the inflated standards established based on the results of the sustainability assessment,” emphasizes letter No. 22-0005/253399.
The regulator separately emphasized the high current profitability of the banking system – UAH 86.5 billion in net profit for 2023, taking into account the increase in income tax from 18% to 50%. The return on capital of the banking sector exceeds 30%. The NBU noted that, also thanks to this (positive assessment of the financial sector), Ukraine was able to undergo the third revision of the IMF EFF loan program (Extended Financing Facility), which is an important condition for our country’s access to a package of general financial assistance from international partners.
Now our banking system will have to comply with new European requirements from Regulation E C No. 648/2012, which were introduced into the relevant Ukrainian law and will come into force on August 8, 2024 (amendments to the law “On Banks and Banking Activities”).
New requirements will be implemented gradually. The first step is to self-assess banks' existing own capital instruments to ensure they meet the new requirements. And also calculation of the amount of bank capital in test mode during April – July 2024.
“This information will be taken into account by the National Bank during preparation for the second stage – the introduction of capital adequacy requirements, which will include, in particular, determining the need to establish transitional provisions for banks to achieve the minimum values of updated capital adequacy standards. The impact on capital adequacy of the inclusion of market and operational risks will also be taken into account,” as specified in the regulator’s letter No. 22-0005/253399.
Remember
At the end of 2023, the National Bank announced the process of assessing internal capital adequacy – ICAAR. By January 1, 2024, banks had to develop internal documents on this account, and by May 31 they needed to submit reports on the implementation of this ICAAR in test mode.
- NBU
