The diagnostics of banks' asset operations with related parties conducted by the National Bank of Ukraine since 2015 has revealed that 23 banks perform such operations in compliance with the regulatory requirements set by the regulator, and, therefore, are not required to submit to the NBU an Action Plan aimed at bringing related-party lending into compliance with the regulatory requirements. Overall, the regulator has conducted a review of the banks' related-party loans in 44 banking institutions as of 1 October 2016.
“The NBU remains involved in efforts to unwind banks' related-party lending. The diagnostics have revealed that the level of related-party loans in some banks has exceeded regulatory norms by several times. Given that the problem of related-party lending has remained unaddressed for decades, banks will be given three years to bring the level of related-party lending into compliance with the regulatory requirements set by the NBU,” said Head of the NBU Office for Monitoring of the Bank’s Related Parties, Mr Oleksii Rudyi.
Banks that are required to reduce the level of related-party lending are currently developing Action Plans that include not only measures aimed at ensuring the repayment of debts under asset operations with related parties, but also measures to repossess assets and reduce the number related persons that no longer meet the “relatedness” criteria.
Presently, 14 banks are preparing three-year schedules for unwinding related-party lending, while four banks have already agreed to such schedules with the NBU.
In October, the NBU will complete the diagnostics of related-party lending in another 14 banks. By the end of 2016, the NBU plans to complete a review of related-party lending in all of the banks operating in Ukraine.
The diagnostics of banks' asset operations with related parties conducted by the NBU is primarily focused on assessing the disclosure of banks’ ultimate beneficial owners and managers of banks’ counterparties and establishing whether the latter fit the definition of "related parties,” as well as examining the nature of relationships and operations between the bank and its counterparties and establishing whether banks conclude contracts on market terms with its counterparties.
The NBU also assesses whether banks verify information regarding the identity of their counterparties when performing asset operaltions and whether financial institutions have sufficient procedures in place to identify ultimate beneficial owners. The regulator also verifies whether the information retrieved from the public register is consistent with the information about the actual owner of the business.
For reference
Under the Law of Ukraine On Banks and Banking, the bank’s related parties shall be the following: 1) bank controllers; 2) persons having a qualifying holding in the bank, and persons through which indirect ownership of a qualifying holding in the bank is exercised by such persons; 3) bank managers, head of the internal audit service, chairmen, and committee members of the bank; 4) the bank’s congenerous parties and affiliates including banking group participants; 5) persons having a qualifying holding in the bank’s congenerous parties and affiliates; 6) managers of legal entities and banks’ managers who are the bank’s congenerous parties and affiliates, head of the internal audit service, chairmen, and committee members of such persons; 7) persons associated with individuals specified in paragraphs 1-6 of this definition; 8) legal entities where the individuals mentioned in this part are managers or qualifying shareholders; 9) any person through which a transaction is performed in the interests of persons referred to in this part, and which is influenced during any such transaction by persons referred to in this part, through labor, civil, and other relations.