Purpose. Reforming Ukraine’s financial sector and maintaining financial stability.
The project consists of five components:
- Component (A). Supporting the authorities in bringing banking supervision into line with international best practices
- Component (B). Improving the system of bank resolution and deposit guarantee in Ukraine
- Component (C). Banking sector reforms aimed at restoring sustainable inflows of loans into the economy
- Component (D). Financial sector diversification and financial infrastructure development
- Component (E). Diagnosing the weaknesses of the financial sector and proposing policy measures.
As part of the project’s components, assistance is provided in the following main areas:
1. Reinforcing supervision over non-bank financial institutions
Assistance objective: regulation of non-bank financial institutions in line with the EU legislation, in particular regulation of insurers
Products for the NBU and the most significant events:
- Support was provided for implementing the Split project (2017–2020).
- Comments and recommendations were provided for the new wording of the Law of Ukraine On Insurance dated 18 November 2021 and for the draft law On Compulsory Insurance against Civil Liability in Respect of the Use of Land Motor Vehicles, and a number of consultative meetings were held (2022).
- A diagnostic study was completed for the insurance market of Ukraine (2021–2022): a quantitative assessment of the impact of the insurance market and the development of relevant regulatory changes. The results were used to prepare the new wording of the Law of Ukraine On Insurance and will also be used to develop regulations for the Ukrainian insurance market.
- IFRS 17 Insurance Contracts was implemented: a series of workshops (October–December 2021) and additional expert consultations were held in 2021–2022.
- Expert missions were held on reinforcing the regulation and supervision in the banking and insurance sectors (2021−2022), based on the results of which the NBU was provided with recommendations for further improvements in these sectors.
- An initiative was launched to create a relevant mechanism for insuring against political and war risks during and after the war (September 2022).
- A meeting was held on supervision over the insurance market of Ukraine: developing the instrument of risk-based supervision (November 2022).
- A series of educational webinars was conducted with support of the World Bank for professional participants in the insurance market on the application of IFRS 17 Insurance Contracts (2023).
2. Improving the system of insolvent bank resolution
Assistance objective:
- to develop a White Paper on further alignment of Ukraine's legislative and regulatory framework for restoring solvency and resolving insolvency of banks in line with international best practices; to develop amendments to the Law of Ukraine On Banks and Banking as regards the implementation of the BRRD Directive
- to implement Directive 2014/59/EU on restoring solvency and resolving insolvency of banks (BRRD)
- to improve the legislation of Ukraine in terms of the coordination and cooperation between the Deposit Guarantee Fund (DGF) and the NBU at stages preceding the attribution of a bank to the category of problem banks and during the period when the bank operates under the status of a problem bank.
Products implemented for the NBU and key events:
- A White Paper and draft amendments to the Law of Ukraine On Banks and Banking were developed with regard to the implementation of BRRD norms (2017−2019).
- A series of webinars on BRRD implementation was held (November–December 2021).
- World Bank expert assistance missions were conducted being dedicated to the implementation of BRRD/DGSD (18−20 October 2021), the plan of updating draft legislative amendments on bank insolvency resolution (BRRD/DGSD), the deposit guarantee scheme, and deposit insurance in line with the EU Directive (December 2021).
- Webinars were held on practical aspects of selling a business instrument on the basis of BRRD (the event was organized with participation of the European Systemic Risk Board and an institution responsible for resolving insolvent banks (Spain) (FROB) (December 2022).
- A number of expert discussions were held regarding amendments to the banking law and the law on the Deposit Guarantee Fund (October 2021 – February 2022, March 2023).
- Additional discussions were held to agree on the concept of the institutional architecture of bank resolution under BRRD, in particular to consider potential scenarios of the conceptual distribution of powers and cooperation options between the NBU and the Deposit Guarantee Fund (in progress).
Capital Requirements Directive 2013/36/EU (CRD IV) / Capital Requirements Regulation (EU) 575/2013 (CRR)
Products implemented for the NBU, and key events:
- The NBU was provided with materials used to develop NBU Board resolutions on the liquidity coverage ratio (LCR), the net stable funding ratio (NSFR), requirements for capital coverage of operational risk, requirements for developing recovery plans, capital instrument subject to write-down/conversion (CoCo), requirements for capital coverage of market risk, and capital buffers (combined capital buffer).
- Assistance was provided in terms of reinforcing the banking regulatory framework in line with Basel III and CRD/CRR (as amended), in particular with regard to the leverage ratio (LR), the large exposures limit (LEX), assessing settlement risk, reviewing risk weights for credit risk in accordance with the standardized approach (SA-CR), and regulatory capital structure (in progress).
Pillar ІІІ
Products implemented for the NBU, and key events:
- A draft NBU regulation was developed regarding the disclosure requirements for banks (Pillar III).
3. Non-performing loans
Assistance objective: to continue improving legislative and regulatory frameworks for handling non-performing loans (NLPs) at banks
Area of assistance:
- assessing legislative and regulatory frameworks for settling NPLs in Ukraine and description of further actions
- tax regime for NPLs
- NPL management framework
- NPL write-offs and collateral value appraisal.
Products implemented for the NBU and key events:
- A webinar was held on the topic Instructions for Assessing Banks’ Actions in Terms of NPL Resolution (2020).
- Discussion was held on details of requests for post-war reconstruction of Ukraine (state guarantees, NPLs, reconstruction plan (short-term and long-term measures), the World Bank’s technical assistance mission (October 2022)).
- A round table was held at which an updated World Bank study on NPLs was presented. The event was attended by 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 the Banks of Ukraine, and other persons dealing with issues related to NPLs (July 2023).
- A workshop was held on the topic Strategies for Resolving Non-performing Bank Loans and Their Assessment – International Experience (July 2023).
4. Sustainable finance (with regard to banking regulation and supervision over climate risks)
Products implemented for the NBU and key events:
- Assistance was provided on climate risks and sustainable finance opportunities (December 2021) within the framework of the financial sector technical assistance mission and the provision of a memo based on its results.
- A draft questionnaire on climate and environmental risks for banks was developed and sent to the NBU (January 2022).
Cooperation in the area of sustainable finance was paused due to the onset of russia’s full-scale invasion of Ukraine. In H2 2023, based on results of a World Bank mission, it was decided to resume cooperation in this area. The NBU approved the composition of the project team Sustainable Finance Development, and continues consultations with World Bank experts. The revised scope of work was included in the updated work plan:
- updating the sustainable finance policy with new actions and a new timeline and defining next steps in drafting related regulatory acts
- creating a questionnaire on ESG (environmental, social, governance) risks in the banking sector
- implementing the guidelines, in particular based on the EU taxonomy, to identify green projects.