With the goal of sustaining financial stability and financial system resilience to possible liquidity shocks on 15 February 2018 the NBU Board approved the new prudential requirement for Ukrainian banks i.e. Liquidity Coverage Ratio or LCR.
“Introducing LCR in Ukraine is an important step towards harmonizing liquidity requirements to Ukrainian banks with the EU regulatory standards and the Basel Committee (Basel ІІІ) recommendations. The next step in this direction will be introducing another ratio, Net Stable Funding Ratio (NSFR), as well as adopting new standards for risk management systems in Ukrainian banks, as well as liquidity risk”, noted Deputy Governor of the National Bank of Ukraine Kateryna Rozhkova.
Liquidity Coverage Ratio stands for a ratio of HQLA to cover total net cash outflows over a 30-day period under the prescribed stress scenario. The ratio demonstrates bank’s short-term resilience of liquidity shocks experienced during the crisis with major retail cash outflows.
Compliance with the ratio confirms that the bank has sufficient liquidity to discharge liabilities during a 30-day crisis period. Considering the degree of dollarization in the Ukrainian banking system, banks should abide by the LCR both in domestic and foreign currencies.
According to the EU standards, the LCR value for banks is set at 100%. The period required to reach the said value by banks will be prescribed by the NBU according to trial calculation results.
From 1 June 2018, the LCR will be calculated on trial basis throughout 6 months.
From 1 December 2018, compliance with the LCR will be obligatory. Banks will calculate the ratio on daily basis and report every month to NBU.
For a certain period the quick liquidity ratio (N4), the current liquidity ratio (N5) and the short-term liquidity ratio (N6) will be applied along with the LCR.
At present banks are ready to introduce LCR considering the existing excess liquidity in the banking sector and high return on government securities listed with the high-quality liquid assets.
The LCR corresponds to the universal global approaches to assessing liquidity and is clear to international investors.
The new LCR was introduced by the NBU Board Resolution No.13 On Introduction of the Liquidity Coverage Ratio (LCR) and the NBU Board Decision No.101-D On Approval of the Calculation Methodology of the Liquidity Coverage Ratio (LCR) dated 15 February 2018. The instruments enter into effect on 1 March 2018.
More information on the application of the new ratio in Ukraine can be found here
For reference: LCR, the liquidity coverage ratio, was introduced by the Basel Committee on Banking Supervision in response to the global financial crisis of 2007–08. The ratio has been a mandatory requirement for EU banks since 2015 under CRR/CRD IV. At present, 45 countries have adopted the LCR, including non-members of the Basel Committee.
For developing and introducing the LCR in Ukraine a group of experts from functional units of the National Bank of Ukraine and commercial banks was appointed in September 2016. In order to adopt the international practice for implementing the ratio the NBU was consulted by the Basel Committee, the World Bank, and the central banks of other countries.