The National Bank of Ukraine (NBU) has set the criteria for writing off impaired financial assets of banks against expected loss provisions. This will allow banks to get rid of nonperforming loans.
Banks can write off impaired financial assets in case there are no reasonable expectations of their recovery. An asset is written off if relevant allowances have been created in line with IFRS 9 Financial Instruments for the entire amount of its book value and one or several of the following criteria are met:
- The debt is fully or partially past due by more than 36 months.
- The bank received no significant payments (exceeding 10% of the asset’s book value) within the previous 36 months.
- The bank did not receive significant proceeds from selling or recovering the collateral; or the bank did not have access/the right to redeem/recover the collateral within the previous 36 months.
- The bank failed to sell the financial asset three times in a row.
- The bank became aware that another bank has written off debt on the asset.
Banks have no right to set more favorable criteria for writing off impaired assets of their related party borrowers.
It should be noted that a write-off is not debt forgiveness. A bank can continue to work on resolving the debt in order to recover it.
Banks have been required, starting in 2020, to analyze impaired assets in terms of the above criteria and write them off by 1 October and to inform the NBU thereof by 1 November of the current year.
The said criteria are set forth in NBU Board Resolution No. 49 On Approval of the Regulation on Defining the Criteria for Writing Off Impaired Financial Assets of Ukrainian Banks against Estimated Expected Loan Loss Provisions dated 13 April 2020. The resolution enters into force on the day following its official publication.