Purpose. Reforming Ukraine’s financial sector and maintaining financial stability.
The Project consists of five components:
- component (A). Supporting the authorities in bringing the banking sector supervisory system into line with international best practice standards
- component (B). Improving the system of bank rehabilitation and deposit guarantee in Ukraine
- component (C). Banking sector reforms aimed at restoring a sustainable flow of loans to the economy
- component (D). Diversifying the financial sector and developing financial infrastructure
- component (E). Diagnosing the weaknesses of the financial sector and providing recommendations for political decision-making.
Within the project components, assistance is provided in the following main areas:
1. Strengthening supervisory functions over non-bank financial institutions.
Objective of the assistance: Regulating the activities of non-bank financial institutions, including insurance companies, in accordance with EU legislation.
Products implemented for the NBU and key events:
- support was provided for the implementation of the “split” project (2017-2020)
- conceptual comments and recommendations were provided for the new version of the Law of Ukraine On Insurance, adopted on 18 November 2021, as well as to the draft Law of Ukraine On Compulsory Insurance of Civil Liability of Owners of Land Vehicles, and a number of consultation meetings were held (2022)
- a diagnostic study of the Ukrainian insurance market (2021-2022) was carried out: as was a quantitative assessment of the impact of the insurance market. Relevant regulatory changes were also developed. The results of the study and assessment were used in the preparation of the new version of the Law of Ukraine On Insurance, and will be used in the development of regulations to regulate the insurance market of Ukraine
- implementation of IFRS 17 “Insurance Contracts”: several cycles of seminars were held in 2021-2023 for the NBU’s employees and insurance market participants;
- expert missions were carried out to strengthen regulation and supervision in the banking and insurance sectors (2021-2022), which resulted in recommendations to the NBU for the further improvement of these sectors
- an initiative was launched to create an appropriate mechanism for insuring military and political risks during and after the war (September 2022);
- conceptual comments and recommendations were provided on draft regulations on insurer solvency and on the methodology for the formation of insurance technical reserves (2023)
- a meeting on the supervision of the Ukrainian insurance market was held, on the topic of the development of a risk-based supervision tools (November 2022);
- materials with examples of the content of training programs and the regulation of actuaries’ activities in other countries (in particular, Slovenia and Austria) were received (2023)
- assistance was provided in developing a Concept for the Development of a War Risk Insurance System (2024).
2. Improving the system for resolving bank insolvency.
Objectives of the assistance:
- developing a White Paper on further alignment of Ukraine’s legislative and regulatory framework for restoring solvency and resolving bank insolvency to the standards of international best practice, drafting amendments to the Law of Ukraine On Banks and Banking Activities to implement the BRRD Directive;
- implementing Directive 2014/59/EU on the restoration of bank solvency and the resolution of insolvent banks (BRRD)
- improving Ukraine’s legislation on coordination and cooperation between the Deposit Guarantee Fund (hereinafter referred to as the DGF) and the NBU at the stages before a bank is classified as a problem bank and during the period of the bank’s operation when it has the status of a problem bank.
Products implemented for the NBU and key events:
- White Paper and draft amendments to the Law of Ukraine On Banks and Banking were developed to implement the provisions of the BRRD (2017-2019);
- a series of webinars on the implementation of the BRRD was held (November-December 2021)
- World Bank expert assistance missions were held on the implementation of the BRRD/DGSD (18-20 October 2021), as well as on the plan to update the draft legislative amendments for the resolution of bank insolvency (BRRD/DGSD), deposit guarantees and deposit insurance in accordance with EU Directives (December 2021)
- seminars were held on the practical aspects of the sale of a business tool under the BRRD [the event was organized with the participation of the European Systemic Risk Board and the institution responsible for the resolution of insolvent banks (Spain) (FROB)] (December 2022)
- a series of expert discussions were held on amendments to the banking legislation and the law on the DGF (October 2021 – February 2022, March 2023)
- additional discussions were held to agree on the concept of the institutional architecture for implementing bank regulation under the BRRD, including a review of possible scenarios regarding the conceptual division of powers and options for cooperation between the NBU and the DGF (work is ongoing).
3. Bringing the banking sector’s regulatory and supervisory system into line with international best practice standards.
Objective of the assistance: bringing the principles of regulation and supervision in the banking sector into line with EU standards (Capital Requirements Directive 2013/36/EU (CRD IV) / Capital Requirements Regulation (EU) 575/2013 (CRR)).
Products implemented for the NBU and key events:
- materials provided for the development of resolutions of the NBU Board on the liquidity coverage ratio (LCR), net stable funding ratio (NSFR), capital requirements for covering operational risk, requirements for developing recovery plans, capital instrument with write-off/conversion terms (CoCo), capital requirements for covering market risk, capital buffers (combined capital buffer)
- materials provided for the development of resolutions of the NBU Board on the procedure for determining the amount of regulatory capital by Ukrainian banks, on the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) on a consolidated basis
- expert assistance provided in strengthening the banking regulatory framework in accordance with the requirements of Basel III and the CRD Directive / CRR Regulation (as amended), namely, improving the capital adequacy requirements for banks, in particular, expanding the list and improving approaches to assessing the components of aggregate risk exposure, including updating the approaches to weighting assets by credit risk level under the Credit Risk Standardized Approach (SA-CR), requirements for Credit Risk Mitigation (CRM), as well as the introduction of requirements for assessing Counterparty Credit Risk (CCR), Credit Valuation Adjustment Risk (CVA) and Settlement Risk (SR), the introduction of the Leverage Ratio (LR), the introduction of the Large Exposure Limit (LEX), and disclosure requirements (Pillar III) (work is ongoing).
3. Non-performing loans.
Objective of the assistance: further improving the legislative and regulatory framework for handling non-performing loans (NPLs) in banks.
Areas of assistance:
- assessment of Ukraine’s legal and regulatory framework for NPL settlement and description of further measures
- tax treatment of NPLs
- management system for NPLs
- write-off of NPLs and valuation of pledged property.
Products implemented for the NBU and key events:
- the webinar “Guidelines for Assessing Banks’ Actions in Terms of Resolving NPLs” was held (2020)
- discussion of details of the requests for post-war reconstruction of Ukraine [state guarantees, NPLs, reconstruction plan (short-term and long-term measures), World Bank technical assistance mission (October 2022)]
- a roundtable discussion on the updated World Bank study on NPLs was held with the participation of representatives of the NBU, the Ministry of Justice of Ukraine, the Ministry of Finance of Ukraine, the Deposit Guarantee Fund, the State Property Fund of Ukraine, the Independent Association of Ukrainian Banks, and other persons dealing with NPLs (July 2023)
- a seminar on “Strategies for Resolving NPLs of Banks and their Assessment – International Experience” was held (July 2023)
- expert assistance in developing an action plan to reduce the level of NPLs was provided (2024).
4. Sustainable finance (regarding banking regulation and climate risk supervision).
Cooperation in the Sustainable Finance area was suspended due to the start of russia’s large-scale invasion of Ukraine. In the second half of 2023, following the results of a regular World Bank mission, the NBU decided to resume cooperation in this area, approved the composition of the Sustainable Finance Development project team, and resumed holding consultation meetings with World Bank experts.
Products implemented for the NBU, and key events:
- assistance was provided on climate risks and sustainable finance opportunities (December 2021) as part of a technical assistance mission to the financial sector, and a memorandum was prepared on the basis of its results
- a draft questionnaire for banks on climate and environmental risks was developed and sent to the NBU (January 2022)
- the Sustainable Finance Policy was updated to reflect new measures and the new schedule for its implementation (pending submission to the NBU Board);
- a questionnaire on ESG (environmental, social, governance) factors in the banking sector was developed and used as the basis for a survey of Ukrainian banks.
Experts from the World Bank’s Financial Sector Advisory Centre (FinSAC) in Vienna are also involved in the project. FinSAC engages in technical work to help Ukraine implement specific legislative, regulatory and institutional initiatives that strengthen the resilience and efficiency of its financial system. In addition, representatives of the NBU participate in annual FinSAC conferences on topical issues of financial sector reform.