With a view to mitigating the impact of adverse developments in the banking system triggered by the domestic currency depreciation, loss of depositors' confidence, and hostilities in some Ukrainian regions, the National Bank of Ukraine has initiated amendments to Article 8 of the Law of Ukraine On Measures to Facilitate Bank Capitalization and Restructuring.
As emphasized by First Deputy Governor of the National Bank of Ukraine Oleksandr Pysaruk, the relevant draft law had been drawn up by the regulator and on March 20, 2015, upon the initiative of the National Bank of Ukraine, it was tabled to the Verkhovna Rada of Ukraine for consideration by the members of Parliament who form the Verkhovna Rada Committee on Financial Policy and Banking (registered as No 2449).
The draft law authorizes the National Bank of Ukraine not to declare the bank a problem or insolvent bank if a decrease in the regulatory capital, the regulatory capital adequacy ratio and the current and short-term liquidity ratios, and an increase in the bank's nonperforming assets were due to an appreciation of the exchange rate of foreign currencies against the domestic currency that occurred after February 6, 2014 and/or the build-up of loan loss provisions (provisions to cover possible losses arising from asset-side banking operations) thereafter.
Under the draft law, the provision authorizing the National Bank of Ukraine not to declare the bank a problem or insolvent bank remains in force until January 1, 2019.
"The developments in the Crimea and eastern Ukraine, the disruption of economic ties between the enterprises, and a fall in real household income have seriously deteriorated the situation in the banking sector, – said Oleksandr Pysaruk. – The banking system needs time to restore its capital. Therefore, the National Bank initiates amendments to the law, which would buy time for banks to resume their normal functioning and encourage banks to make concessions to borrowers in restructuring their debts".
He also added that all the provisions of the draft law had been agreed with the International Monetary Fund.
As a side note, under the current provisions of the Law of Ukraine On Banks and Banking that are set forth in Articles 75 and 76 thereof, the National Bank of Ukraine is obliged to declare the bank a problem bank if the regulatory capital adequacy ratio has decreased by half a percent from the minimum regulatory capital adequacy ratio of 10% to 9.5%. The bank is declared insolvent if a bank's capital adequacy ratio has decreased to one third of the minimum amount – from 10% to 3%.
"At the same time, this proposal is intended to tighten banking supervision rather than weaken it. In addition, the National bank of Ukraine will closely oversee the implementation of recapitalization plans by banks, and those banks that fail to implement them will be put into resolution," concluded First Deputy Governor of the National Bank of Ukraine Oleksandr Pysaruk.