In order to introduce modern European practices and approach the capital standards of the Basel III and provisions of the EU Directive on capital requirements (CRD IV), the National Bank of Ukraine announces the intention to gradually introduce new requirements for bank capital, including Tier 1 capital adequacy H3, provision (conservation) buffer and a countercyclical capital buffer for all banks, as well as systemic buffer for systemically important banks.
The new bank capital requirements are approved by NBU Board Resolution No.312 of 12.05.2015 On Amendments to the Instruction on Banking Regulation in Ukraine (hereinafter - Resolution No.312).
Capital adequacy ratio for banks will be introduced at 7% starting from 01.01.2019. Achieving this level of capital adequacy by the end of 2018 for the 20 largest banks by size of assets is provided for in the Memorandum of Cooperation between Ukraine and the IMF.
Buffers are formed over the Tier 1 capital adequacy ratio and designed to improve banks' ability to withstand crises by creating additional "air bags" and reduce the probability of bank failures.
It is planned to introduce the capital buffers starting from 01.01.2020.
The capital provision (conservation) buffer is accumulated by banks during the period of economic growth to offset potential losses arising in a general economic recession. Buffer size will increase annually over the 2020 - 2023 years by 0.625 p.p. (from 0.625% to 2.5%, as defined by the Basel Committee on Banking Supervision).
Countercyclical capital buffer is intended to protect the banking sector from accumulation of risks in times of credit expansion. Depending on the phase of the economic cycle the buffer size will range from 0% to 2.5%. The introduction of a specific size of the countercyclical capital buffer will take place only after careful calculations and in the conditions of sustainable economic growth in the country.
The National Bank of Ukraine also establishes certain requirements to systemically important banks because of their importance to the stability of the entire banking system and economy in general.
Starting from 01.01.2019, the following ratios will be set for systemically important banks: the instant liquidity ratio (H4) - not less than 30%, the single counterparty exposure limit (H7) - no more than 20%.
For systemic banks the buffer of systemic importance will be established starting from 01.01.2020. Its size will be differentiated depending on the category of systemic importance of the bank from 1% to 2%.
In addition, considering the changes in the Ukrainian laws, Resolution No. 312 sets a new bank’s related party transactions exposure limit (H9) to replace the maximum loans, guarantees and warranties granted to one insider H9 and maximum total amount of loans and guarantees granted to insiders H10.
Resolution No. 312 shall take effect after 31 days from the date of its official publication.