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Ukraine’s Banking System Has Sufficient Safety Margin – Bank-Specific Results of Resilience Assessment

Ukraine’s Banking System Has Sufficient Safety Margin – Bank-Specific Results of Resilience Assessment

Most banks in Ukraine have sufficient capital, and the banking system as a whole has a high margin of safety. This is according to the bank-by-bank results of the resilience assessment published by the NBU. Based on the results of the resilience assessment, the NBU set higher required capital adequacy ratios for only five banks, two of which in December had adequacy ratios above the required level.

In April 2023, the NBU resumed its resilience assessments of the banks and the banking system, while under martial law, after taking an almost two-year break due to the ongoing full-scale war. The resilience assessment included an asset quality review (AQR) and an evaluation of performance indicators and capital adequacy ratios over a three-year horizon for the top 20 banks that jointly account for 90% of the sector’s net assets.

Overall, the assessment results show that the banks are adequately assessing their credit risk. Prudential provisions were adjusted by only about 1% as a result of the AQR, by 0.5% based on the verification of the value of collateral, and by less than 0.5% based on the extrapolation of the AQR results to the entire loan portfolio of some banks. None of these adjustments had a significant adverse impact on the banks’ capital. 

The main reason the five banks needed capital was that their operating efficiency was far below the sector average. Almost all of these banks had low interest margins and high cost-to-income ratios in the reporting period (1 April 2022 to 1 April 2023).

The banks that have higher required capital adequacy ratios set for them should submit their restructuring or capitalization programs to the NBU in the near future. The key measures included in these programs are expected to cover balance sheet restructurings and operational efficiency improvements.

Two of the five banks that had by December already achieved adequacy ratios above the required level must at least maintain their capital at the target level set for them. The other banks must meet the required capital adequacy ratios in two stages:

  • by the end of September 2024, based on a hurdle rate of 0%
  • by the end of March 2026, based on hurdle rates at the regulatory required level.

“The banking system retains its resilience even in wartime, thanks in part to the regular resilience assessments we have been conducting since 2018,” said NBU First Deputy Governor Kateryna Rozhkova. “The results of the current assessment have confirmed our expectations, and so we are pressing forward with the implementation of European requirements for capital and with the easing of restrictions on its distribution.”

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