The National Bank of Ukraine has approved new magnitudes of adjusting factors applicable to different types of assets that shall be accepted by the NBU as collateral secure the fulfilment of obligations under refinancing, repo operations and operations under agreements for the provision of custodial services for NBU cash stocks.

Adjusting factors are intended to minimize losses faced by the NBU in the event of materialization of interest rate, exchange rate and liquidity risks causing 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 determines 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 and NBU certificates of deposit (CDs) was left unchanged at 95% and 100%, respectively.

Additionally, the regulator has approved an upper limit on the decrease in the amount of assets (property) pledged as collateral, setting it at 5%. This means that the NBU  will require a bank to pledge additional collateral to secure the fulfilment of obligations under refinancing, repo operations and operations under agreements for the provision of custodial services for NBU cash stocks only if the fair value of the collateral adjusted for adjusting factors  impairs by more than 5%.  The impairment in the fair value of collateral of up to 5% will be covered by adjusting factors.

The new magnitudes of adjusting factors  shall come into effect from 8 August 2017 and are put in place by Order of the NBU Governor of 7 August 2017 NO 760-no On Approval of the Magnitudes of Adjusting Factors and an Upper Limit on the Decrease in the Amount of Assets (property) Pledged as Collateral.