The National Bank of Ukraine (NBU) has introduced the updated requirements for banks to identify groups of related counterparties bearing the common economic risk, which will take effect on 1 July 2019.
These requirements are based on the Supervisory Framework for Measuring and Controlling Large Exposures by the Basel Committee on Banking Supervision.
Large concentrations of banks’ exposures as regards certain counterparties may cause the major capital loss at a bank due to financial problems of such counterparties. If the counterparties are related legally or economically, then in case one counterparty has troubles with meeting the obligations, there is a high probability of other counterparties having the similar troubles.
According to the updated requirements, banks are to identify a group of related counterparties, given that such counterparties are related either by control or by economic dependency. This obliges banks to thoroughly study their counterparties, including their ownership structure, business environment, financial statements indicators, etc.
Furthermore, the NBU takes measures to restrict the lending to the bank’s related parties.
Thus, it introduces a requirement to reduce the regulatory capital of a bank by an excess of an actual value of RPs’ total debt over the required maximum. The above requirement will take effect in 30 days from the day of official publication of the relevant resolution.
The said requirements are provided for by NBU Board Resolution No. 139 On Approval of Amendments to the Guidelines on the Procedure for Regulation of Banks’ Operations in Ukraine dated 18 December 2018.