23 Jun 2022 14:20

Several state-owned banks in Ukraine may require additional capitalization - NBU

MOSCOW. June 23 (Interfax) - The National Bank of Ukraine (NBU) expects that the majority of Ukrainian banks will be able to restore their capital themselves with the help of future revenue following losses caused by the known reasons, but shareholders will have to provide additional capitalization to other banks.

"In particular, it is a possible scenario for several state-owned banks," the Ukrainian media quoted the NBU as saying in its financial stability report.

At the same time, the regulator said that during the crisis it will not apply corrective measures on banks over violations of capital adequacy requirements.

"Meanwhile, at this stage, it is important for banks to timely report their credit losses. It will give the NBU a clear picture of the market's state in order to make further regulatory decisions, including regulatory easing adjustments," it said.

The NBU did not name these state-owned banks, but said that some state-owned "have seen a drop" in their capital levels.

According to the report, 20 major banks in Ukraine are demonstrating sufficient resilience against a 30% loss of the loan portfolio of financial institutions, which together control more than half of the top 20 banks' assets.

"If one adds to this share the share of state-owned banks which 'have seen a drop' in their capital levels but enjoy unconditional support from the state, it is possible to assert that banks holding 82% of the top 20 banks' assets have sufficient resilience against such an extremely negative macro-economic scenario," the NBU said.

Banks that will constantly demonstrate a negative cash flow from operations during the crisis will be subject to close scrutiny, and their operations will be limited under certain circumstances in order to protect depositors, the regulator said.

The negative impact of the current crisis will be long-lasting, and it will be possible to relatively accurately assess its consequences only after macro-economic conditions stabilize, the NBU said. The bank will also evaluate the quality of assets in order to accurately calculate the size of losses, and will separately assess banks' viability, i.e. whether they are able to normalize financial indicators in the foreseeable future.

Given the extent of losses, the authorities will determine a sufficient period for banks to restore their capital, an effort which may take several years, the NBU said in its report. Banks will also have to work out capitalization and asset restructuring plans.

State-owned banks played the most active role in increasing loan portfolios within state programs, the NBU said. They provided financing to critical infrastructure enterprises, including state corporations. Since martial law was declared in Ukraine, the volume of state companies' debt to banks has grown by 27% as banks' support of defense and energy sector enterprises has increased. However, the share of state companies' loans remains insignificant, making up a mere 10% of the entire loan portfolio, the NBU said.

Ukraine currently has four state-controlled banks: PrivatBank, Oschadbank, Ukreximbank, and Ukrgazbank, which were in first, second, third, and fifth places, respectively, by assets among Ukraine's 69 functioning banks as of the end of April 2022. These four banks hold 52% of all assets of Ukraine's banking system.