Data on Ukrainian banks’ compliance with prudential ratios released by the regulator suggest that the banking system’s aggregate regulatory capital adequacy ratio rose from 7.09% in September to 9.90% in October. However, with the insolvent banks excluded, the regulatory capital adequacy ratio stands at 11.70%
An improvement in the regulatory capital adequacy ratio was attributed to the increase in the regulatory capital. In October, the aggregate regulatory capital within the banking sector increased by UAH 27.8 billion due to the resolution of Delta Bank PJSC and higher contributions to non-registered authorized capital of CB PRAVEX BANK PJSC. As a side note, the winding-up proceedings in respect of Delta Bank PJSC was launched in October.
In addition, the regulatory ratio of maximum credit exposure under bank’s related party operations (R9) rose from 38.60% to 46.36%, with a 25 percent permitted limit on this ratio. The increase in the regulatory ratio of maximum credit exposure under bank’s related party operations was due to a rise of UAH 19.3 billion in the “Total arrears on term and overdue deposits, loans, ...of the bank to bank’s related parties”. Related-party lending has the potential to jeopardize the stability of the financial system, primarily due to the bank’s high dependence on the core business of its owner, posing risks to household deposits. The National Bank is currently involved in robust efforts to identify related-party transactions, draw up, together with banks, and approve related-party debt settlement schedules. Given that related-party lending is a deep-rooted problem, it will take three years to tackle it.
In October, the liquidity ratios recorded a sharp increase: the instant liquidity ratio rose from 61.26% to 70.64%, the current liquidity ratio – from 69.33% to 80.59% and the short-term liquidity ratio – from 83.80% to 88.30%.
Overall, these figures point to the first signs of stabilization in the banking market. The situation remains challenging. However, a gradual improvement in the capital adequacy and liquidity ratios marks a positive sign for the market. In addition, a number of banks from among the first 20 largest banks, at which the capital deficiencies were revealed by the diagnostic studies, are expected to approve plans containing measures to resolve the situation.