Resolution of the Board of the National Bank of Ukraine No 23 of 25 January 2012 (hereinafter referred to as the – Resolution No 23) approved the Regulation on the Procedure for Forming and Using Provisions for Compensation of Possible Losses under Active Banking Transactions (hereinafter referred to as the – Regulation).

This Regulation is the result of the joint efforts made by the NBU experts, banking community and leading audit companies.

The preparation of the Regulation is a next step towards bringing the NBU regulations in line with the requirements of the International Financial Reporting Standards. Simultaneously, the Regulation ensures compliance with the Principles of the Basel Committee on Banking Supervision.

The Regulation is a codified document, which envisages application of unified approaches to the assessment of active transactions, namely: loans; funds placed with other banks; accounts receivable; securities; financial liabilities.

The provisions of this Regulation provide for a comprehensive assessment of an asset rather than carrying out and assessment of its components.

The Regulation has retained the effective approaches to the calculation of provisions based on the analysis of the debtor’s financial position, his ability to repay the debt timely and in full, availability and liquidity of collateral.

The methodology for assessing the financial position of borrowers, being legal entities, by applying simulation (mathematical) models for calculation of their creditworthiness, which is based on the financial statements and takes into account the type of economic activity in which borrowers are engaged, has been improved.

Apart from that, the effect of debt servicing on classification of assets has been increased, approaches to taking into account the value of collateral in calculating provisions have been altered.

The banks have been given time until the end of the current year to adapt to new approaches specified by this Regulation.

The implementation of the Regulation will ensure application of internationally-accepted practice in forming provisions; it will enable the users of financial reporting to obtain more complete and reliable information on the financial position of banks and their financial performance.

Resolution No 23 was registered with the Ministry of Justice of on 15 February 2012 under No 231/20544 and will come into effect from the day of its official publication.