You're reading: NBU considerably mitigates requirements to banks due to occupation, hryvnia devaluation

The National Bank of Ukraine (NBU) has decided to temporarily not apply fines to banks for violation of economic requirements, limits for the general (long/short) open currency position due to the situation in Crimea, armed hostilities in Donetsk and Luhansk regions and due to the hryvnia exchange rate devaluation.

The NBU said in a letter to banks (No. 40-117/47465), the decision is stipulated in NBU resolution No. 529 of Aug. 26.

Resolution No. 529 will take effect from the moment of its publication on the NBU’s Web site and will be in effect until Jan. 1, 2015.

“Administrative measures will not be applied to banks if they observe restrictions… [preventing] the violation of economic requirements, and on limits on the general (long/short) open currency position,” reads the document.

According to the resolution, the reduction of the regulatory capital due to the formation of reserves on active banking transactions with contractors in Crimea, Donetsk and Luhansk regions and under agreements pegged to foreign currency signed before Feb. 6, 2014 is not the reason for applying the administrative measures.

The only exceptions are agreements that were amended after Feb. 6, 2014 in part of increasing the terms of using assets, which are not linked to the debt restructuring and/or the increase of sums under the said transactions.

According to the resolution, the administrative measures will not apply for the increase of the share of bad assets to 10 percent and more of the total sum of assets used for assessing risks and forming reserves under the same circumstances.

If the reasons brought a bank to losses due to the formation of reserves to compensate the possible losses under active banking transactions, the credit and financial institution is also withdrawn from the risk of applying sanctions.

According to the resolution, for receiving the said preferences banks are obliged to stick to some restrictions, in particular, not to issue credits without collateral that is in line with the requirements of the NBU (apart from overdraft credits to individuals under wage projects, overnight credits and swap currency transactions).

The list of restrictions also includes the refusal of banks from opening new economically autonomous divisions, active transactions with insiders, early payments on securities issued by banks (apart of cases when the early payment is settled at the price of no higher than 50 percent of the face value and does not bring to the large worsening of the bank’s liquidity).

In addition, the relaxed requirements apply to banks which will refuse buying own shares, paying dividends to shareholders (apart from paying dividends under preferred shares), purchasing non-state securities on the behalf of banks (apart from bonds secured by the government) and distributing capital in any form (apart from sending profit to increase the charter capital, form reserves and cover losses of the previous years).

Among restrictions is the refusal of banks from early return of deposits to insiders, payment of bonuses and other additional compensations to heads of banks (apart from payments which are part of a salary and are paid on a regular basis).

The banks are also banned from increasing the volumes of capital investment, apart from immovable property that came into the ownership of banks.

The resolution says that if banks observe the said restrictions, their regulatory capital will not be cut by the sum of exceeding the limits for credit risks per contractor (H7) and the limit for credits, guarantees provided to on insider (H9) if the exceeding of the limit is linked to the hryvnia devaluation after Feb. 6, 2014.

The document obliges banks who have the said violation of requirements to draw up a detailed plan on removing the drawbacks before Jan. 1, 2015 and submit it to the NBU by Oct. 1, 2014.