The NBU has delayed the schedule for banks to form their capital reserve (conservation) buffers and systemic importance buffers.
Capital buffers are reserves that banks accumulate in times of economic expansion to cover potential costs if the economy goes into recession.
Regulators around the globe have been easing capital buffer requirements amid signs of downturns in a bid to let banks use their capital reserves to mitigate losses and make loans.
The NBU’s decision will enable the Ukrainian banking system to finance the economy so that it can continue to operate as bouts of turbulence hit global markets and the government imposes restrictions to contain the spread of Covid-19.
In particular, the banks will be allowed to push back the creation of the following buffers:
- the capital conservation buffer, which they were to have begun to form on 1 January this year and which was to have started from 0.625% of core capital and to have gradually risen to 2.5% by 1 January 2023
- the systemic importance buffer, which is calculated based on the bank’s level of systemic importance and which the banks were to have started forming on 1 January 2021.
While the banks have been allowed to meet capital buffer requirements at a later time, they need to maintain their existing stock of capital in order to make sure they are resilient and that they can cover potential costs. The NBU thus recommends that the banks refrain from directing their capital towards dividend payouts until economists are better able to estimate the fallout from the restrictions put in place to combat the coronavirus outbreak.
The NBU will inform the banks of new capital buffer schedules in advance.
The decision to extend capital buffer deadlines was approved by NBU Board Resolution No. 37 On Amendments to Some Regulatory Documents of the National Bank of Ukraine, dated 24 March 2020, which goes into effect on 26 March 2020.