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Ministry of Justice of Ukraine

 September 26, 2001

No. 841/6032

RESOLUTION OF BOARD OF THE NATIONAL BANK OF UKRAINE

of August 28, 2001 No. 368

About approval of the Instruction about procedure for regulation of activities of banks in Ukraine

(as amended on 24-12-2019)

According to requirements of the Laws of Ukraine "About the National Bank of Ukraine" and "About banks and banking activity" and for the purpose of ensuring stable activities of banks and timely accomplishment of obligations to their investors by them the Board of the National Bank of Ukraine DECIDES:

1. Approve the Instruction about procedure for regulation of activities of banks in Ukraine it (is applied).

2. To general department of banking supervision (P.V.Andrushchenko) and Department of informatization (A. S. Savchenko) till 01.10.2001 to make corresponding changes to program complex of the automated calculation of economic standard rates and to timely bring it to permission of territorial administrations of the National Bank of Ukraine and banks.

3. To banks to accept the finished program complex of the automated calculation of economic standard rates in accomplishment and since 01.11.2001 to carry out its trial operation.

4. Since 01.01.2002 banks perfrom calculation of economic standard rates according to the Instruction about procedure for regulation of activities of banks in Ukraine approved by this resolution.

5. To general department of banking supervision (P.V.Andrushchenko) and territorial administrations of the National Bank of Ukraine since 01.01.2002 to exercise control of observance of obligatory economic standard rates by banks on new program complex according to the Instruction about procedure for regulation of activities of banks in Ukraine approved by this resolution.

Till 01.01.2002 banks shall observe economic standard rates according to the Instruction about procedure for regulation and the analysis of the activities of commercial banks approved by the resolution of Board of the National Bank of Ukraine of 14.04.98 No. 141 and the corrective action registered in the Ministry of Justice of Ukraine 15.05.98 for No. 323/2763, for violation of which shall be applied according to Chapter 7 of the Regulations on application by the National Bank of Ukraine to banks and other financial credit institutes of corrective actions for violation of the bank law approved by the resolution of Board of the National Bank of Ukraine of 26.05.2000 No. 215 and registered in the Ministry of Justice of Ukraine 03.07.2000 for No. 382/4603 (with changes).

6. Recognize invalid:

Procedure for provision of permission to accounting of the raised funds on the terms of subordinated debt to the capital of bank, the No. 518 approved by the resolution of Board of the National Bank of Ukraine of 25.10.99 and registered in the Ministry of Justice of Ukraine 15.11.99 for No. 786/4079 (with changes);

The instruction about procedure for regulation and the analysis of activities of commercial banks approved by the resolution of Board of the National Bank of Ukraine of 14.04.98 No. 141 and registered in the Ministry of Justice of Ukraine 15.05.98 for No. 323/2763 (with changes).

7. The resolution becomes effective in 10 days after its state registration in the Ministry of Justice of Ukraine, except Item 6, which becomes effective since 01.01.2002.

The instruction about procedure for regulation of activities of banks in Ukraine approved by this resolution becomes effective since 01.01.2002.

8. To general department of banking supervision (P.V.Andrushchenko) to bring this resolution after its state registration to permission of independent structural divisions of the National Bank of Ukraine, territorial administrations of the National Bank of Ukraine, and also banks for management and use in work.

9. To impose control of execution of this resolution on the vice-chairman V. L. Krotyuk, General department of banking supervision (P.V.Andrushchenko), Operation management (V. D. Shchutsky) and chiefs of territorial administrations of the National Bank of Ukraine.

Chairman

V. S. Stelmakh

 

Approved by the Resolution of Board of the National Bank of Ukraine of August 28, 2001 No. 368

The instruction about procedure for regulation of activities of banks in Ukraine

Section I. General provisions

This Instruction is entered for the purpose of ensuring stable activities of banks and timely accomplishment of obligations to investors by them, and also prevention of the wrong resource allocation and loss of the capital because of the risks inherent in banking activity.

The instruction is developed according to the commonly accepted principles and standards in the international practice.

According to the Law of Ukraine "About the National Bank of Ukraine" and the Law of Ukraine "About banks and banking activity" the National Bank of Ukraine (further - National Bank) establishes the procedure for determination of the regulatory capital of bank and such economic standard rates which are all banks, obligatory for accomplishment:

standard rates of the capital:

minimum size of the regulatory capital (N 1),

sufficiency (adequacy) of the regulatory capital (N 2),

capital adequacy (N 3),

standard rates of liquidity:

short-term liquidity (N 6);

coverage ratio of liquidity (LCR) on all currencies (LCRBB) and in foreign currency (LCRIB);

coefficient of net stable financing (NSFR);

standard rates of credit risk:

the maximum extent of credit risk on one partner (N 7),

big credit risks (N 8),

the maximum extent of credit risk on transactions with the faces tied with bank (N 9),

standard rates of investment:

investment into securities separately on each organization (N of 11)-1,

total amount of investment (N 12).

For the purpose of increase in stability of banks in the period of financial and economic instability, creation of capital inventory by them for increase in capability to resist to risks the National Bank establishes requirements for forming of capital buffers by banks, namely: buffers of inventory (preservation) of the capital and counter-cyclical buffer.

For systemically important banks the National Bank also establishes requirements for forming of the buffer of system importance.

If transactions are performed by bank at the expense of the capital according to requirements of this Instruction, then such transactions do not join in calculation of economic standard rates base for calculation of which the regulatory capital is.

The bank when calculating economic standard rates uses the credit ratings of debtor/partner/asset on the international scale determined by rating agencies "Standard&poor" s ", " Moody "s Investors Service", "Fitch Ratings" taking into account Item 38 of the Section II of Provisions on determination by banks of Ukraine of the extent of the credit risk on active banking activities approved by the resolution of Board of the National Bank of Ukraine of June 30, 2016 No. 351 (with changes) (further - No. Provision 351).

Action of this Instruction extends to all banks of Ukraine irrespective of patterns of ownership.

To National Bank of unreliable information of rather economic standard rates banks bear responsibility according to requirements of the current legislation of Ukraine for provision.

Section II. Regulatory capital of bank

Chapter 1. Procedure of payments of the regulatory capital of bank

1.1. The regulatory capital is one of the most important indicators of activities of banks which basic purpose is the covering of negative consequences of various risks (2) which banks undertake in the course of the activities, and ensuring protection of deposits, financial stability and stable activities of banks.

_____________

(2) Risks in banking activity follow from specifics of banking activities which are performed in the conditions of the market relations, and mean probability of receipt of the income, smaller from expected, reduction in cost of assets. The raised bank risks lead to considerable financial losses and, as a result, to bankruptcy of banks.

Banks for the purpose of determination of the actual size of the regulatory capital taking into account risks in the activities shall estimate constantly quality of active banking activities (to perform their classification), and also to determine the extent of credit risk according to the Provision No. 351.

Banks determine credit risk in currency, the corresponding currency of active banking activities.

Banks determine the size of credit risk by all active banking activities as the cumulative extent of credit risk on these transactions as of the first day of every month following for reporting in hryvnia (taking into account credit risk on active banking activities in foreign currency in hryvnia equivalent on the official rate of hryvnia to the foreign currencies established by National Bank).

Banks determine the size of uncovered credit risk as follows:

If the size of credit risk is less or is equal to the amount of the cumulative size of the reserves on active banking activities created according to requirements of international accounting standards (further - the size of reserves according to IFRS), the size of writedown of the financial assets estimated at fair value, and expected credit losses which according to the regulatory legal act of National Bank concerning accounting of financial instruments are reflected in separate analytical accounts of discounts if such credit losses are not considered on accounts of reserves (further - the expected credit losses reflected on accounts of discounts) then the size of uncovered credit risk is equal to zero;

if the size of credit risk exceeds the amount of the size of reserves according to IFRS, the size of writedown of the financial assets estimated at fair value, and the size of the expected credit losses reflected on accounts of discounts, then the size of uncovered credit risk is equal to the amount of such excess.

The size of uncovered credit risk is calculated as of the first day of every month following for reporting and joins in calculation of standard rates of the capital within the next month in the procedure established by National Bank.

The bank when calculating the regulatory capital reduces profit of bank by the size of uncovered credit risk, namely:

retained earnings of last years;

result of the current and accounting year (profit).

If the size of uncovered credit risk exceeds the size of profit of bank, then the size of fixed capital of bank decreases by the amount of such excess.

1.2. The regulatory capital of bank - set of the basic (the 1st level) of the capital and additional (the 2nd level) the capital.

Fixed capital is considered to the invariable and not subject transfer, redistribution and shall cover the current losses completely.

The supplementary capital has less permanent nature and its size is exposed to changes.

1.3. Fixed capital (the capital of the 1st level) consists of such elements:

a) actually paid registered authorized capital. Bank - the legal successor considers in fixed capital the registered authorized capital of bank which is reorganized, from the next day after signing of the transfer act / distribution balance by participating banks of reorganization;

b) additional contributions of shareholders in the authorized capital;

c) financial aid of shareholders of bank;

d) the profit directed to increase in the authorized capital;

e) the capital tool with write-off/conversion conditions;

e) the opened reserves - the reserves and funds created or increased for the retained earnings account and promulgated in the financial reporting of bank:

issued differences. Issued differences (share premium) - the amount of excess of the receipts received by the issuer from issue (release) of own shares (other corporate laws) over nominal value of such shares (other corporate laws) (in case of their primary placement)

reserve funds which are created according to the laws of Ukraine;

general reserves which are created under uncertain risk when carrying out banking activity;

other funds of bank;

The losses from transactions with shareholders received after June 4, 2016.

These components join in the capital of the 1st level only provided that they correspond to such criteria:

contribution to reserves and funds is performed from profit after the taxation or from the profit to the taxation corrected on all potential tax liabilities;

purpose of reserves and funds and movement of means on these reserves and funds is separately opened in the announced reports of bank;

funds shall be at the disposal of bank for the purpose of unrestricted and their immediate use for covering of losses;

any covering of losses at the expense of reserves and funds is carried out only through the profit and loss account.

e) the general size of fixed capital is determined taking into account the size of the expected (possible) losses by pending obligations of any physical person or legal entity both resident, and the nonresident having relations of financial nature with bank (further - the partner) and decreases by the amount:

nedosformirovanny reserves for compensation of possible losses on active banking activities;

intangible assets less the depreciation amount;

the capital investments in intangible assets;

losses of last years;

losses of the current year.

1.4. The supplementary capital (the capital of the 2nd level) consists of such elements:

a) the result of revaluation of fixed assets, joined in the amount of the regulatory capital of banks as of 31.12.2010.

Banks shall submit the message on the amount of value addition of fixed assets which is included in the regulatory capital to National Bank no later than five working days since such inclusion.

In calculation of the standard rate of sufficiency (adequacy) of the regulatory capital (The N 2) by the time of confirmation of result of revaluation of fixed assets by the auditor (auditing firm) the amount of value addition of fixed assets is not considered;

b) result of the current and accounting year (profit) that it is reduced by the amount:

The imputed incomes, uncollected more than 30 days from the date of their charge which payment due date did not expire (except the income on securities, which are carried to the I group of assets with risk degree of 0 percent according to requirements of this Instruction, and the income on financial assets, on which extent of book value decreases the size of the regulatory capital according to requirements of Item 1.8 of Chapter 1 of the Section II of this Instruction) reduced by the amount of the created reserves, the writedowns of the financial assets carried at fair value with recognition of revaluation through profits / losses, expected the credit losses reflected on accounts of discounts, and increased by the amount of revaluation of the financial assets carried at fair value with recognition of revaluation through profits/losses in the part relating to such imputed incomes;

imputed incomes which payment due date under the agreement expired, the created reserves reduced by the amount, the writedowns of the financial assets carried at fair value with recognition of revaluation through profits / losses, expected the credit losses reflected on accounts of discounts, and increased by the amount of revaluation of the financial assets carried at fair value with recognition of revaluation through profits/losses in the part relating to such imputed incomes.

If the profit of the current and accounting year is less than total amount of adjustment, then the size of fixed capital of bank decreases by the amount of such difference;

The profits and losses from transactions with shareholders got till June 4, 2016 join in the regulatory capital of bank as a part of result of the current and reporting years.

c) subordinated debt which is considered in the capital (the subordinated capital);

d) retained earnings of last years;

") the capital tool with write-off/conversion conditions which turns on in the supplementary capital.

1.5. The subordinated debt is the regular debt capital instruments (constituent elements of the capital) which are not provided with bank which according to the agreement cannot be taken from bank before five years, and in case of bankruptcy or liquidation return to the investor after repayment of claims of all other creditors. The amount of the subordinated debt included in the capital annually decreases by 20 percent of its primary size within five last years of validity.

The subordinated debt can join in the capital of bank after receipt of permission of National Bank.

1.6. Financial aid of shareholders (the amount of irretrievable financial aid, forgiveness of the credits, deposits (deposits), subordinated debt, etc.) can join in fixed capital of bank after receipt of permission of National Bank under following conditions:

means are received in cash and are irretrievable;

means are not credit, and are own means of shareholders;

the structure of property of bank conforms to the requirements for its transparency established by National Bank.

For receipt of permission the bank gives to structural division of National Bank which exercises supervision of activities of bank, the following documents:

petition for possibility of inclusion of financial aid of shareholders in fixed capital of bank;

written assurance of shareholders that source of origin of financial aid are own means of shareholders of bank.

The National Bank makes the decision on refusal in provision to bank of permission to inclusion of financial aid of shareholders in fixed capital if:

the documents submitted by bank do not conform to requirements of this Item;

the structure of property of bank is acknowledged opaque or on structure of property of bank verification of documents on compliance to requirements for transparency according to regulatory legal acts of National Bank is performed.

The decision on provision of permission to inclusion of financial aid of shareholders in fixed capital bank/refusal in provision of such permission accepts Committee on questions of supervision and regulation of activities of banks, supervision (oversight) of payment systems (further - Committee on questions of supervision) within a month from the date of receipt of the documents provided by this Item.

1.7. During calculation of total amount of the regulatory capital the general size of the supplementary capital cannot be more than 100 percent of fixed capital.

1.8. For determination of the size of the regulatory capital of bank the general size of the capital of the 1st and 2nd levels in addition decreases on:

a) book value of the shares and other securities with unstable profit issued by banks are also carried at fair value;

b) book value of investments into the associated and subsidiary companies, and also book value of investments in the capital of other organizations in the amount of 10 and more percent of their authorized capital;

c) book value of shares (shares) of own issue accepted in providing the loans (other investments) granted by bank;

d) book value of the extra listing securities (except the securities emitted by the central executive bodies, National Bank and the Public mortgage institution) carried at fair value;

") book value of extra listing securities (except the securities emitted by the central executive bodies, National Bank, the Public mortgage institution and local government bodies of Ukraine) which are carried at fair value;

e) book value of securities which do not address on the stock exchanges (including which trade on the stock exchanges is forbidden by the legislation of Ukraine), in trade portfolio of bank;

e) book value of securities of not diversified investment funds.

The paragraph the ninth is excluded according to the Resolution of Board of the National Bank of Ukraine of 30.11.2017 No. 121

g) the amount of excess of the cumulative amount of all requirements of bank to the faces tied with bank and the amounts of all financial liabilities provided by bank concerning the faces tied with bank over the amount which constitutes 25 percent (20 percent - for specialized banks) the general size of the capital of the 1st and 2nd levels, reduced by book value of the assets specified in subitems "an" - "e" Item 1.8 of Chapter 1 of the Section II of this Instruction.

1.9. The capital tool with conditions of write-off/conversion is capital tool with repayment period at least 50 years which contains conditions about discharge of bank of the tool by write-off or conversion in case of approach of trigger event.

The bank turns on the capital tool with write-off/conversion conditions in the capital of bank after receipt of permission of National Bank.

Chapter 2. Minimum size of the regulatory capital of bank

2.1. The minimum size of the regulatory capital of bank (The N 1) who obtained the banking license after July 11, 2014 shall make 5 million hryvnias.

2.2. The minimum size of the regulatory capital of bank (The N 1) who obtained the banking license till July 11, 2014 shall constitute:

120 million hryvnias - till June 17, 2016;

200 million hryvnias - since July 11, 2017;

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