On 1 November 2016, the Board of the National Bank of Ukraine issued Decision No 393-рш On Approval of Inspection Procedures,

 which modified the rules for organizing, planning, and conducting inspections and reporting their findings, as well as established the procedure for measuring  approving a CAMELSO rating system.

The CAMELSO rating system is designed to assess the financial condition of banks, the quality of management and corporate governance, the transparency of operations and efficiency of internal controls, and risk management. This rating system helps identify shortcomings that could potentially lead to bankruptcy and require tighter control from the banking supervisory authorities, thus enabling banks to take corrective measures to address shortcomings and stabilize the financial condition.

The CAMELSO rating system is based on risk assessment and allows to rate financial institutions based on the following key components:

• Capital – Capital Adequacy (C) -  assesses an institution's capital adequacy in order to protect the interests of depositors and support its liquidity.
• Asset Quality (A) – assesses the ability of financial institution to repay assets and the impact of NPLs on  the financial condition of a bank.

Management and Corporate Governance – Management (M) – assesses the corporate governance methods applied by the bank arrangements from the perspective of the principles underlying corporate governance and in terms of efficient performance,  managerial methods and controls.

Earnings (E) – asseses an institution's ability to create appropriate returns to be able to expand and develop.

Liquidity (L) – assesses a bank’s ability to fully meet  its obligations in a timely manner.

Sensitivity to market risks– Sensitivity to Risk (S) – assesses a bank’s response to  changes in the market situation.

Operational Risk (О) – assesses a bank’s ability to efficiently manage operational and information risks to prevent/minimize financial losses due to the materialization of these risks.

A comprehensive rating assessment based on the CAMELSO rating system  is carried out for every bank and banks are rated using a combination of the aforementioned components. Each component of the rating system is assessed based on a four score scale, where , and a rating of one is considered the best and the rating of four is considered the worst for each component.    

A comprehensive rating assessment of a bank indicates the following:

• Rating 1 indicates that a bank is credible in terms of all the indicators and capable to withstand most economic downturns (except eemergency situations). This bank is deemed sound and has qualified management;
• Rating 2 points to shortcomings in the bank’s operation. If these shortcomings are not addressed, a bank might face significant solvency liquidity-related problems;
• Rating 3 indicates that a bank has significant shortcomings in its operation and its solvency is at stake. Such comprehensive rating assessment requires the NBU to respond promptly and  take urgent mesures;
• Rating 4 reflects poor liquidity and solvency. The bank requires special rehabilitation measures and a prompt response from the NBU that will have to take urgent measures to address the situation.