22 Dec 2023 15:09

Stress tests of Ukraine's 20 largest banks show that only five require additional capitalization - NBU

MOSCOW. Dec 22 (Interfax) - The National Bank of Ukraine (NBU) assessed the stability of the country's 20 largest banks, which together account for more than 90% of the net assets of the banking sector, and identified the need for the additional capitalization of five banks.

"These five banks will prepare capitalization and restructuring programs to achieve capital adequacy or maintain it at the established level," Ukrainian media quoted the NBU as saying in its financial stability report published on Friday.

Two of them "have already managed to increase capital adequacy to the higher standards established as a result of the audit," while three banks "have risks of completely losing their capital over a three-year horizon," the NBU said.

Director of the NBU Financial Stability Department Pervin Dadashova said at the presentation of the report that the three banks included a state-owned one, and their compliance with the National Bank's requirements can be achieved without recapitalization.

"We are not talking about increasing capital through recapitalization exclusively. Banks will have a final deadline of April 2026 to approach the required capital adequacy standards," a fairly lengthy period during which banks can take a number of measures, including the usual risk mitigation and capitalization of dividends, Dadashova said in her presentation, broadcast on the NBU YouTube channel.

The sustainability assessment this year was conducted only according to the basic macroeconomic scenario: the realization of credit risk and a decrease in interest margin.

As noted, the decision to increase the bank profit tax rate was made almost simultaneously with the completion of the sustainability assessment. Therefore, this increase is not reflected in the results, but the higher tax rates will not affect banks' capital adequacy ratios. At the same time, high taxation will slow down capital growth in the future, making capitalization and restructuring programs more difficult for banks with higher capital requirements.

"Another factor influencing the dynamics of capital adequacy, but not taken into account in the stress test, is the restoration of requirements for covering operational risk. However, additional calculations show that even an increase in the tax burden and taking 100% of operational risk into account will not prevent banks from increasing capital adequacy," the NBU said.

"Using the results of the sustainability assessment at the beginning of next year, the NBU will analyze the feasibility and possible timing of establishing a capital conservation buffer and a buffer of systemic importance. After this, restrictions on the distribution of capital and the payments of dividends by banks that form these buffers in full could be weakened," the NBU report said.

The next stress test for Ukrainian banks is scheduled for 2025.

The memorandum with the IMF updated in December noted that in accordance with the terms of reference adopted by the NBU in January 2023, an independent asset quality review (AQR) of banks will be carried out immediately after the situation has stabilized, after which a further assessment of the viability of banks will be carried out. Until the end of June 2024, they will prepare a priority interdepartmental action plan to address the issue of non-performing loans. It states that the current ban on bank capital distribution will remain in effect until AQR findings are fully reflected in banks' regulatory ratios and financial statements.

The National Bank also committed to closing the identified gaps in the regulatory capital structure by the end of December 2023 and eliminating other gaps by the end of December 2024 based on the results of a gap analysis in comparison with the Directive and the EU Regulation on capital requirements.