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RESOLUTION OF BOARD OF THE NATIONAL BANK OF UKRAINE

of February 21, 2018 No. 14

About approval of the Instruction for financial accounting of financial instrument transactions in banks of Ukraine

(as amended on 30-12-2020)

According to Articles 7, of 15, of 41, 56 Laws of Ukraine "About the National Bank of Ukraine", article 68 of the Law of Ukraine "About banks and banking activity", for the purpose of enhancement of regulatory legal acts which establish procedure for account management of financial accounting of banks of Ukraine the Board of the National Bank of Ukraine DECIDES:

1. Approve the Instruction for financial accounting of financial instrument transactions in banks of Ukraine which is applied.

2. To banks till March 30, 2018 to develop and approve internal procedures (provisions) / to bring internal procedures (provisions) and to approve them concerning establishment of technique:

1) conducting testing of cash flows on financial assets;

2) determinations of business models of financial asset management;

3) estimates of the expected credit losses;

4) determination of fair value of financial instruments according to the International Financial Reporting Standard 13 "Assessment of fair value".

3. Recognize invalid regulatory legal acts of the National Bank of Ukraine according to the list which is attached.

4. To accounting department (Lukasiewicz B. V.) after official publication to inform banks information on adoption of this resolution.

5. To impose control over the implementation of this resolution on the vice-chairman of the National Bank of Ukraine Borisenko G. N.

6. The resolution becomes effective since March 1, 2018.

Acting as Chairman
Ya. V. Smoly

Approved by the Resolution of Board of the National Bank of Ukraine of February 21, 2018 No. 14

The instruction for financial accounting of financial instrument transactions in banks of Ukraine

I. General provisions and terms

1. This Instruction is developed according to the Laws of Ukraine "About banks and banking activity", "About the National Bank of Ukraine", "About financial accounting and the financial reporting in Ukraine", "About securities and the stock market", other legal acts of Ukraine, regulatory legal acts of the National Bank of Ukraine and international accounting standards.

2. This Instruction establishes the main requirements for reflection in financial accounting of transactions of banks with financial instruments [the credits, deposits (deposits), securities, other financial investments which are not drawn up by securities]. The bank performs financial accounting of financial instrument transactions according to internal operational procedures (rules) and internal technique developed taking into account requirements of this Instruction, the legislation of Ukraine and international accounting standards.

3. In this Instruction terms are used in such value:

1) the active market - the market in which transactions for assets or liabilities happen to sufficient frequency and in sufficient amount to provide information on pricing on continuous basis;

2) the amortized cost of financial asset or the financial liability - the amount on which the financial asset or the financial liability in case of initial recognition is estimated, less the received or paid means [the main amount of debt, interest incomes (expenses) or other payments connected with initiation of financial asset or the financial liability], increased or reduced by the size of the accumulated depreciation calculated with use of effective rate of percent, - differences between originally acknowledged amount and repayment sum of the financial instrument, and also for financial assets, corrected taking into account provision under credit losses;

3) book value is the cost at which the asset and obligations are reflected in balance. Book value for financial asset and the financial liability consists of the main amount of debt, the added percent, unamortized award (discount), the revaluation amount, and for financial asset - the provision amount under the expected credit losses;

4) gross carrying amount of financial asset - the amortized cost of financial asset before adjustment at provision size under credit losses;

Expenses on transactions - the additional expenses which are directly connected with acquisition, release or disposal of financial asset or the obligation and which could not arise if the subject of housekeeping did not issue did not acquire 5) or did not realize the financial instrument. The commission charges paid to agents, consultants, brokers and dealers, charges to regulating authorities, stock exchanges, taxes and the state tax, other expenses belong to expenses on transaction. Expenses on transactions do not include discounts or awards on debt financial instruments, administrative expenses;

6) date of balance - date for which the balance of bank is made. Usually date of balance is the end of the last day of the accounting period;

7) activity date is date with which the asset shall acquire or sell bank;

8) date of reclassification - the first day of the accounting year following in what the bank changed business model that led to reclassification of financial asset (financial assets). Date of reclassification is date of initial recognition of the reclassified financial asset;

9) settlement date is date with which the asset is transferred to bank (is recognized asset of bank) or is transferred by bank (asset derecognition). Settlement date is date with which begins (in case of acquisition) and charge of percent on assets of bank stops (in case of realization);

10) long-term contribution (deposit) - the placed or raised funds for term more than one year;

11) long-term loans - the granted or obtained loans are one term more than one year;

12) discount is the amount of excess of nominal value of financial instruments over their fair value in case of initial recognition without the percent added for the period of acquisition if such cost is lower, than nominal value;

13) issued differences (share premium) is excess of cash amount, received from primary release or sale of own shares (other corporate laws), over their nominal or excess of nominal of shares (other corporate laws) over the cost of their redemption;

14) effective rate of percent - rate which precisely discounts the expected flow of future money payments or receipts throughout the expected effective period of financial asset or the financial liability to gross carrying amount of financial asset or the amortized cost of the financial liability. The bank perfroms calculation of effective rate of percent on the basis of the expected future cash flows taking into account all terms of the contract with financial asset without the expected credit losses;

15) the effective rate of percent corrected taking into account credit risk - rate which precisely discounts the expected flow of future money payments or receipts throughout the expected effective period of financial asset to the amortized cost of financial asset which is the acquired or created depreciated financial asset. The bank perfroms calculation of the effective rate of percent corrected taking into account credit risk on the basis of the expected future cash flows taking into account all terms of the contract with financial asset and the expected credit losses; (5 *)

16) the depreciated financial assets are financial assets on which there are objective proofs of damage or one or several events having negative impact on the expected future cash flows on such financial asset are observed. Confirmation of impairment of financial asset are observation data on such events:

considerable financial difficulties of the issuer or borrower;

breach of agreement, such as default or delay of payment;

provision by bank of concession to the borrower on the economic or contractual conditions connected with financial difficulties of the borrower, the bank did not consider other conditions;

high probability of bankruptcy or financial reorganization of the borrower;

disappearance of the active market for financial asset as a result of financial straits;

purchase or creation of financial asset at greatly reduced prices which reflects the suffered credit losses.

The bank considers cumulative effect of several events if it is impossible to identify one separate event which entailed impairment of financial asset;

17) the obligation on crediting - the obligation of bank to grant to the client the loan under certain conditions;

18) short-term contribution (deposit) - the placed or raised funds for the term which is not exceeding one year;

19) short-term loan - the granted or obtained loan for the term which is not exceeding one year;

20) credit loss is difference between the present cost of cash flows in accordance with the terms of the agreement and this cost of cash flows which the bank expects to receive, discounted on effective rate. The bank incurs credit loss even if it expects to receive all amount under the agreement in full, but later, than it is provided by the agreement;

21) effective interest rate method - method of calculation of the amortized cost of financial asset or the financial liability (or groups of financial assets or financial liabilities) and income distributions in the form of percent or expenses on interest payment during the corresponding period of time;

22) the modified financial asset - asset on which the cash flows provided by the agreement are reviewed. Modification can not lead to derecognition of such financial asset or lead to derecognition of financial asset with the subsequent recognition of new financial asset;

23) the main amount is fair value of financial asset in case of initial recognition which changes during action of financial asset in case of implementation of payments in repayment of the main amount of debt;

24) the expected credit losses (or provision) - the weighted average value of credit losses determined with use of the corresponding probabilities of approach of events of default as weighing coefficients;

25) the expected credit losses for 12 months (or provision on financial instruments at the first stage of reduction of usefulness) - part of the credit losses expected during all effective period of the financial instrument which can result from approach of events of default within the next 12 months;

26) the expected credit losses throughout all effective period of financial asset (or provision on financial instruments at the second or third stage of reduction of usefulness, or for the acquired or created depreciated financial asset) - the expected credit losses arising owing to approach of all possible events of default during the expected effective period of the financial instrument;

27) award is the amount of excess of fair value of financial instruments during their initial recognition without added (saved-up) for the period of acquisition percent over their nominal value;

28) the acquired or created depreciated financial asset - the acquired or created financial asset which is depreciated for date of initial recognition;

29) arrears - the debt which is not extinguished in time, established by the agreement. Debt the financial instrument in the amount of gross carrying amount is recognized overdue financial accounting if any payment (the main amount or percent) on such financial instruments is overdue;

30) percent - are cost recovery of money and credit risk concerning the main amount which remains not extinguished during certain time, and can include compensation of other regular risks and expenses connected with crediting and profit margins;

31) fair value - the price which would be received for sale of asset or is paid for transfer of the obligation in regular (ordered easy) to transaction between participants of the market for date of assessment. Fair value is determined according to requirements of the International Financial Reporting Standard 13 "Assessment of fair value";

32) standard procedures of purchase or sale is purchase or sale of financial asset according to the agreement which conditions require delivery of asset during the period of time established by the rules (convention) accepted in the corresponding market. The agreement providing implementation of calculation of change in value on a net basis is not the agreement according to standard procedures. In financial accounting such agreement is reflected as the derivative financial instrument;

33) the financial instrument is agreement according to which at the same time there is financial asset at one subject and the financial liability or the tool of equity at other subject of managing.

Other terms used in this Instruction are used in the values determined by the laws of Ukraine, regulatory legal acts of the National Bank of Ukraine and international accounting standards.

4. Financial accounting of financial instrument transactions is performed according to economic essence of transactions according to balance and off-balance sheet accounts of the Chart of accounts of the financial accounting of banks of Ukraine approved by the resolution of Board of the National Bank of Ukraine of September 11, 2017 No. 89 (with changes) (further - the Chart of accounts).

The bank reflects in financial accounting asset sale and services with payment deferral, according to their economic essence on accounts on accounting of the credits according to the Chart of accounts.

The bank when implementing transactions has the right to use transit accounts, accounts creditor and receivables according to requirements of the software on condition of their further reflection on the corresponding accounts on accounting of certain financial instrument.

The bank during implementation of the accounting entries on financial instrument transactions determined by this Instruction uses the list of the grouped accounts (appendix to this Instruction) in which accounts are grouped according to their appointment.

The bank applies accounting on activity date and settlement date to transactions of regular acquisition or sale of financial assets according to accounting policy. The bank applies the chosen accounting method consistently to all purchases and sales of financial assets belonging to the same category.

5. The bank during initial recognition of the financial instruments carried at fair value with recognition of revaluation through profits/losses estimates them at fair value without the expense accounting on transaction. The bank reflects in financial accounting expenses on transactions on acquisition of such financial instruments according to income accounts of expenses during initial recognition of financial instruments.

The bank estimates all other financial instruments in case of initial recognition at fair value to which expenses on transactions are added.

6. The bank reflects in financial accounting expenses on transaction and other payments which are directly connected with recognition of the financial instrument on accounts of discount/award on these financial instruments (except the financial instruments estimated at fair value with recognition of revaluation through profits/losses).

The bank according to internal technique reflects in financial accounting on the separate analytical account of discount/award the expected credit losses if such credit losses are not considered according to the provision account.

7. The bank performs classification and assessment of financial assets, proceeding from business model which it uses for management of these assets, and characteristics of the cash flows provided by the agreement.

8. The bank reflects in financial accounting the equity instruments intended for trade, at fair value with recognition of revaluation through profits/losses.

The bank makes the decision without the right further its cancellations to recognize revaluation to fair value of the equity instruments which are not intended for trade in other comprehensive income. Cumulative changes of fair value are not transferred from other comprehensive income to profits or losses, and can be referred only to other equity item in case of derecognition of the equity instruments carried at fair value with recognition of revaluation through other comprehensive income.

9. The bank recognizes on debt financial instruments interest income (charge of percent, depreciation of discount/award) on effective rate of percent during the period of date of their acquisition before date of derecognition (sale, right to claim concession, repayment, write-off for the provision account), reclassifications.

10. The bank recognizes interest income on debt financial instruments which are estimated at fair value with recognition of revaluation through profits/losses, and dividend income on capital tools separately or as a part of the revaluation amount to fair value according to accounting policy.

11. The bank does not perform charge of percent and depreciation of discount or award if interest income on the debt financial instruments carried at fair value through profits/losses is recognized structure of revaluation.

The bank reflects in accounting accumulated interests on accounts of award/discount in case of acquisition of coupon securities with accumulated interests. The amount of the received coupon reduces the amount of award or increases the discount amount.

12. The bank recognizes interest incomes on the financial assets considered on the amortized cost, on effective rate of percent to gross carrying amount except for:

1) the acquired or created depreciated financial assets. To such financial assets are applied the effective rate of percent corrected taking into account credit risk to the amortized cost of financial asset from the date of initial recognition;

2) financial assets which were not the acquired or created depreciated financial assets, but further became the depreciated financial assets. The bank applies effective interest rate to the amortized cost of financial asset in the subsequent accounting periods to such financial assets.

The bank recognizes interest income on effective rate of percent to gross carrying amount of financial asset, since the following accrual date of percent if as a result of impact of certain events earlier depreciated financial asset was recovered, and is not depreciated any more.

13. The bank during initial recognition of the financial instrument reflects in financial accounting profit or loss on difference amount between fair value of financial asset or the financial liability and cost of the contract in correspondence with accounts of discount/award if the effective rate of percent on these tools is higher or lower, than market. The difference between fair value of financial asset or the financial liability and cost of the contract on transactions with shareholders of bank is reflected in the capital on accounts of class 5 "The capital of bank" of the Chart of accounts and belongs parts to retained earnings (loss) during the period of its content or the total amount of time of disposal of the financial instrument.

14. The bank derecognizes financial asset or group of financial assets (further - financial asset) if:

1) the effective period of the rights to cash flows from financial asset determined by terms of the contract expires;

2) transfer of financial asset corresponds to criteria of derecognition according to Item 15 of the Section I of this Instruction;

3) there was write-off for the provision account.

The bank directly reduces gross carrying amount of financial asset for the provision account if has no reasonable expectations concerning recovery of financial asset in general or its parts. Write-off is event of complete or partial derecognition of financial asset.

15. The bank transfers financial asset if one of the following conditions is carried out:

1) the bank transfers the rights to cash flows from financial asset provided by the agreement;

2) the bank keeps the rights to cash flows from financial asset provided by the agreement on transfer, but undertakes the obligation to pay cash flows to one or several receivers under the agreement which corresponds to the following conditions:

the bank has no obligation to pay the amounts to final buyers until receipt of the equivalent amounts from initial asset;

terms of the contract prohibit to bank to sell or pledge initial financial asset, except its transfer to final receivers as providing the obligation to pay cash flows;

the bank has the obligation to transfer any cash flows which it receives at the request of final receivers without essential delay. Besides, the bank has no right to repeatedly invest such cash flows, except for investments by money or cash equivalents (as it is determined in the International accounting standard 7th "Cash flow statement") during short maturity of date of collection before date of the necessary translation to their final receivers. Percent on such investments are transferred to final receivers.

16. The bank estimates limits in which it keeps all risks and remunerations from ownership of asset by transfer of financial asset, taking into account the following:

1) the bank derecognizes financial asset and recognizes the rights and obligations created or kept by transfer, separately as asset or liability if it transfers in the basic all risks and remunerations from possession of financial asset;

2) the bank continues to recognize financial asset if it keeps generally all risks and remunerations from possession of financial asset;

The bank determines 3) whether control over financial asset remains if it does not transfer, does not keep generally all risks and remunerations from possession of financial asset.

The bank does not exercise control over the transferred asset if the party to which this asset is transferred has real opportunity to sell it to the untied third party, can perform this sale unilaterally without need to set additional restrictions concerning such transfer.

The bank derecognizes such asset and recognizes the rights and obligations created or kept by transfer, separately as asset or liability if control of financial asset does not remain. The bank continues to recognize the transferred financial asset within its further participation in it in case of preserving control over financial asset.

17. The bank recognizes difference between the book value of financial asset estimated for date of derecognition and the amount of the received compensation (including the size of the received new asset less the size of undertaken obligation) as the income or expenses from derecognition.

18. The bank reflects in financial accounting change of terms of the contract or modification on financial asset that leads to review of cash flows on them as:

1) derecognition of initial financial asset and recognition of new financial asset at fair value; or

2) continuation of recognition of initial financial asset with new conditions.

19. The bank recalculates gross carrying amount of financial asset and recognizes the income or expenses from modification if terms of the contract with financial asset are reviewed by agreement of the parties or there is any other modification does not lead to derecognition of initial financial asset.

The bank calculates new gross carrying amount as present cost of the reviewed or modified cash flows provided by the agreement discounted on initial effective rate of percent (or the initial effective rate of percent corrected taking into account credit risk - for the acquired or created depreciated financial assets). The bank includes expenses on transaction in book value of the modified financial asset and will amortize them during effective period of such asset.

The bank recognizes difference between gross carrying amount on initial conditions and gross carrying amount on the reviewed or modified conditions as the income or expenses from modification.

20. The bank stops to recognize initial financial asset and recognizes new financial asset if the reviewed or modified cash flows provided by the agreement lead to derecognition of initial financial asset. The bank recognizes for date of modification new financial asset at fair value, considering costs for the transactions connected with creation of new financial asset (except for new asset which is carried at fair value with recognition of revaluation through profits/losses), and determines the amount of the expected credit losses for 12 months.

The bank recognizes cumulative changes in the expected credit losses throughout all effective period of financial asset if modification is resulted by new financial asset which is depreciated in case of initial recognition.

The bank on each reporting date recognizes results of changes of the expected credit losses during all effective period of the financial asset depreciated during initial recognition (including positive changes) as a part of profits/losses as expenses/income on forming/disbandment of provisions. The income from disbandment of provisions is recognized even case of excess of size of earlier created reserve on such financial assets.

The bank recognizes for date of derecognition of initial financial asset the income or expenses from derecognition which equal to difference between book value of initial financial asset and fair value of new financial asset.

21. The bank derecognizes in balance of the financial liability or its part if such obligation is extinguished, cancelled or the term of its execution expired.

22. The bank reflects in financial accounting exchange between the borrower and the creditor of debt financial liabilities with significantly excellent conditions as repayment of the initial financial liability and recognition of the new financial liability.

The bank reflects in financial accounting essential changes of conditions (modification) on financial liabilities or its part as repayment of the initial financial liability (its part) and recognition of the new financial liability.

23. The bank determines significantly excellent such conditions according to which the net present value of cash flows on new conditions discounted using initial effective rate of percent (the financial liability with floating interest rate - effective rate of percent which was calculated during the last change of nominal interest rate), differs minimum for 10% of the discounted current value of the cash flows which remained till repayment period of the initial financial liability.

24. The bank reflects any expenses or remunerations as the income or expenses from derecognition if exchange of debt financial liabilities or change of conditions on financial liabilities is reflected in financial accounting as repayment of the initial financial liability and recognition of the new financial liability.

25. The bank reflects in financial accounting difference between book value of the financial liability extinguished or transferred to other party (or parts of the financial liability) and the amount of the paid compensation including the transferred non-cash assets and the assumed liabilities as the income or expenses from derecognition.

26. The bank adjusts book value of the financial liability on any expenses and remunerations on them and performs their depreciation on effective rate of percent taking into account the changed cash flows if exchange of debt financial liabilities or change of conditions on them (modification) is not reflected in financial accounting as repayment.

27. The bank recognizes provision under the expected credit losses on:

1) to financial assets which is estimated on the amortized cost;

2) to financial assets which is estimated at fair value with recognition of revaluation in other comprehensive income;

3) to obligations on crediting and financial guarantees;

4) financial receivables.

The bank does not recognize provision on capital tools.

28. The bank in case of recovery of usefulness of financial assets performs adjustment of provision under the expected credit losses on financial assets which were not the acquired or created depreciated financial assets, but further became the depreciated financial assets, at the third stage of reduction of usefulness by difference amount between:

1) the amount of percent on effective rate of percent which would be acknowledged without taking note of the expected credit losses (on the basis of gross carrying amount), and

2) interest incomes which shall be acknowledged according to the subitem 2 of Item 12 of the Section I of this Instruction (on the effective rate of percent applied to the amortized cost of financial asset).

29. The bank on reporting date, and also for date of derecognition (repayment, concession of rights to claim, sale, write-off for the provision account) and date of change of conditions (modification) of the financial instrument performs charges of interest income, depreciation of award/discount, revaluation at fair value, the analysis of change of the expected credit loss for forming/disbandment of provision.

30. The bank considers the debt financial instruments which are not extinguished in the time determined by the agreement with use of separate parameters of analytical accounts of the corresponding balance sheet accounts of the Chart of accounts on accounting of debt financial instruments.

The bank reflects in financial accounting the debt on the credit the overdraft which is not extinguished in the time established by the agreement from the next day according to the corresponding balance sheet account on accounting of the credits with the separate parameter of the analytical account of overdue debt or according to the corresponding balance sheet account on accounting of the credits the overdraft with the separate parameter of the analytical account of overdue debt within 30 days after the repayment period determined by the agreement.

The bank reflects in financial accounting the debt on the credit the overdraft which is not extinguished over 30 days after the term determined by the agreement on the corresponding balance sheet account on accounting of the credits with the separate parameter of the analytical account of overdue debt.

The bank performs accounting of documents on monetary requirements which are not fulfilled by bank in the time established by the legislation of Ukraine, on off-balance accounts 9804 "Documents of subjects of managing on monetary claims to bank which are not executed by bank in the time established by the legislation of Ukraine", 9806 "The documents of physical faces / accounts of physical persons which are not executed by bank in the time established by the legislation of Ukraine" or 9807 "Documents of other banks on the monetary claims to bank which are not executed by bank in the time established by the legislation of Ukraine" account groups 980 "Documents on settlement transactions" of the Section 98 "Accounting of Values and Documents" of the class 9 "Off-balance accounts" of the Chart of accounts.

31. The bank performs accounting of financial instruments in foreign currency and bank metals, and also charges of the income and expenses, forming/disbandment of provisions is similar to accounting treatment for financial instruments in national currency. The bank performs charge of interest incomes and expenses, forming/disbandment of provisions in the same currency in which the financial instrument is considered.

The bank reflects in financial accounting exchange differences from revaluation of the debt financial instrument estimated on the amortized cost, at fair value with recognition of revaluation through profits/losses and at fair value with recognition of revaluation through other comprehensive income and also the percent added on them, unamortized discount / award and provisions under credit losses in foreign currency and bank metals in connection with change of the official rate of hryvnia to foreign currencies on account 6204 "Result from revaluation of foreign currency and bank metals" of account group 620 "Result from revaluation" of the Section 62 "Result from Revaluation and from Purchase and Sale Transactions" of the class 6 "Income" of the Chart of accounts.

The bank overestimates remaining balance in foreign currency on accounts on accounting of the equity instruments carried at fair value on the official rate of hryvnia to foreign currencies for date of determination of their fair value. The bank reflects such result of revaluation on accounts 6223 "Result from transactions with securities which are carried at fair value through profits/losses" account groups 622 "Result from transactions with financial assets and financial liabilities" of the Section 62 "Result from Revaluation and from Purchase and Sale Transactions" of the class 6 "Income" of the Chart of accounts - for the equity instruments carried at fair value with recognition of revaluation through profits/losses, or 5106 "Results of revaluation of equity instruments which are carried at fair value through other comprehensive income" account groups 510 "Results of revaluation" of the Section 51 "Results of Revaluation" of class 5 "The capital of bank" of the Chart of accounts - for the equity instruments carried at fair value with recognition of revaluation through other comprehensive income.

II. Valuation principles of debt financial assets banks

32. The bank after initial recognition estimates debt financial asset on the basis of business model and characteristics of the cash flows provided by the agreement on:

1) the amortized cost;

2) fair value with recognition of revaluation in other comprehensive income;

3) fair value with recognition of revaluation through profits/losses. The bank determines business model not for each asset, and at the level of groups of financial assets which manages in total for achievement of certain business objective.

33. The bank regularly performs assessment of the business model used for financial asset management for the purpose of generation of cash flows. The bank for date of assessment of business model considers all objective indications (factors) which are available for this date:

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