The National Bank of Ukraine has approved the magnitudes of adjusting factors applicable to different types of assets, which from 1 December 2015 shall be accepted by the NBU as collateral securing performance of obligations under refinancing and repo operations in accordance with NBU Board Resolution No. 615, dated 17 September 2015, “On Approval of the Regulation On the Use of Standard Banking System Liquidity Regulation Instruments by the National Bank of Ukraine.” NBU Order No. 345-оd of 27 November 2015 “On Approval of the Magnitudes of Adjusting Factors and the Upper Limit for the Decrease in the Amount of Assets (Property) Pledged as Collateral” has been issued to this effect.
Earlier, the NBU applied adjusting factors only to collateral that was accepted to secure the repayment of stabilization loans to banks.
Adjusting factors are intended to minimize losses faced by the NBU in the event that interest rate, exchange rate, and liquidity risks materialize and cause an impairment in the fair value of collateral accepted by the NBU. Adjusting factors are applied to the fair value of collateral and are contingent on its key characteristics. Thus, the NBU has determined the standard adjusting factors for domestic sovereign bonds grouped by certain characteristics, specifically currency denomination, residual maturity, coupon rate, and additional terms (e.g., bond indexing or redemption through amortization installments). The adjusting factor for foreign currency is set at 95%.
Additionally, the NBU Order has approved an upper limit on the decrease in the amount of assets (property) pledged as collateral, setting it at 5%, as mandated by NBU Board Resolution No. 615. This means that the NBU will require a bank to pledge additional collateral to secure performance of an obligation under refinancing operations only if the fair value of the collateral, once adjusted for using adjusting factors, declines by more than 5%. The impairment in the fair value of collateral of up to 5% will be covered by adjusting factors.