RESOLUTION OF BOARD OF THE NATIONAL BANK OF UKRAINE

of July 6, 2000 No. 279

About approval of the Regulations on procedure for forming and use of reserve for compensation of possible losses on credit operations of banks

List of amending documents

According to Art. 59 the Law of Ukraine "About the National Bank of Ukraine" and for the purpose of enhancement of procedure for forming of reserve for compensation of possible losses on credit operations of the Board DECIDES: banks

1. Approve Regulations on procedure for forming and use of reserve for compensation of possible losses on credit operations of banks it (is applied).

2. Declare invalid the Regulations on procedure for forming and use of reserve for compensation of possible losses on loans of commercial banks approved by the resolution of Board of the National Bank of Ukraine of 29.09.97 of N323 (with changes and amendments).

3. Determine that banks shall perform forming of reserves under credit risks on means which contain on the correspondent accounts opened in other banks and on the imputed incomes delayed for the term of more than 30 days on credit operations according to Items 1. 6, 1.7, 8.2 of Regulations on procedure for forming and use of reserve for compensation of possible losses on credit operations of banks, since January 1, 2001.

4. Oblige Accounting department to bring till January 1, 2001 corresponding changes in the Chart of accounts of financial accounting of commercial banks of Ukraine concerning accounting treatment the delayed more than 30 days of imputed incomes on credit operations.

5. The resolution becomes effective in 10 days after state registration in the Ministry of Justice of Ukraine.

6. To impose control over the implementation of this resolution on the vice-chairman Ya. F. Soltis, Department of prudentsiyny supervision (V. O. Zinchenko), Management of supervision of big banks (Yu.O.Gerasimenko), Operation management (V. D. Shchutsky) and chiefs of territorial administrations of the National Bank of Ukraine.

 

Approved by the Resolution of Board of the National Bank of Ukraine of July 6, 2000 No. 279

Regulations on procedure for forming and use of reserve for compensation of possible losses on credit operations of banks

1. General provisions

1.1. For the purpose of increase in reliability and banking system stability, protection of interests of creditors and investors of banks by the National Bank of Ukraine (further - National Bank) the procedure for forming and use of reserve for compensation of possible losses on credit operations of banks is established.

The reserve for compensation of possible losses on credit operations of banks (further - reserve under credit risks) is special reserve which need of forming is caused by credit risks which are inherent in banking activity. Creation of reserve under credit risks is recognition of expenses for display of real result of activities of bank taking into account quality degradation of its assets or increase in risk-taking of credit operations.

The bank displays in financial accounting forming and use of reserves according to regulatory legal acts of National Bank on financial accounting.

1.2. The regulations on procedure for forming and use of reserve for compensation of possible losses on credit operations of banks (daleepolozheniye) are developed based on the laws of Ukraine "About the National Bank of Ukraine", "About banks and banking activity", "About pledge", "About economic societies", "About joint-stock companies" and regulatory legal acts of National Bank.

1.3. For the purpose of non-admission of losses from not return of debt because of insolvency of borrowers (partners of bank) assessment of credit risks is performed on all credit operations and means placed on the correspondent accounts opened in other banks both in national and in foreign currency.

Banks independently determine risk level of credit operations, estimate financial condition of borrowers (partners of bank) and pledge cost within the current legislation.

1.4. Treat debt on the credit operations constituting credit portfolio of bank:

means of banks in calculations and the term deposits placed in other banks and doubtful debt on them (balance sheet accounts 1502, 1510, 1512, 1513, 1514 1515, 1516, 1517);

the loans granted to other banks and doubtful debt on them (balance sheet accounts 1520, 1521, 1522, 1523, 1524, 1525, 1526 KA, 1527, 1600 A);

the requirements acquired on transactions of factoring with subjects of housekeeping and doubtful debt for them (balance sheet accounts 2030, 2036 KA, 2037);

the loans granted on transactions of repo to subjects of housekeeping (balance sheet accounts 2010, 2016 KA);

the loans granted according to discounted bills to subjects of housekeeping and doubtful debt on them (balance sheet accounts 2020, 2026 KA, 2027);

the credits to subjects of housekeeping in the current activities, in investing activities and doubtful debt on them (balance sheet accounts 2062, 2063, 2065, 2066 KA, 2067, 2071, 2072, 2073, 2074, 2075, 2076 KA, 2077);

the mortgage loans granted to subjects of housekeeping and doubtful debt on them (balance sheet accounts 2082, 2083, 2085, 2086 KA, 2087);

the loans granted to public authorities and local self-government and doubtful debt on them (balance sheet accounts 2102, 2103, 2105, 2106 KA, 2107, 2112, 2113, 2115, 2116 KA, 2117);

the mortgage loans granted to public authorities and local self-government and doubtful debt on them (balance sheet accounts 2122, 2123, 2125, 2126 KA, 2127, 2132, 2133, 2135, 2136 KA, 2137);

the credits for current demands and in investing activities which are provided to physical persons, and doubtful debt on them (balance sheet accounts 2202, of 2203, of 2205, of 2206 KA, 2207, of 2211, of 2215, of 2216 KA, 2217);

the mortgage loans granted to physical persons and doubtful debt on them (balance sheet accounts 2232, 2233, 2235, 2236 KA, 2237);

the loans granted according to discounted bills to physical persons and doubtful debt on them (balance sheet accounts 2220, 2226 KA, 2227);

the loans the overdraft granted to subjects of housekeeping and physical persons (balance sheet accounts 2600 A, 2605 A, 2620 A, 2625 A, 2650 A, 2655 A);

guarantees, guarantees, confirmed letters of credit, acceptances and the aval provided to banks (off-balance accounts 9000, 9001, 9002, 9003);

requirements for the guarantees paid by bank (the balance sheet account 3548);

the guarantees and the aval provided to clients (except banks) (off-balance accounts 9020, 9023);

the obligations on crediting provided to banks and clients (off-balance accounts 9100, 9122, 9129). 50% of the amount of obligations on crediting which are considered on off-balance accounts 9100, 9129 are taken into account of reserve.

1.5. For the purpose of calculation of reserve under credit risks banks shall perform classification of credit portfolio by each credit operation depending on financial condition of the borrower, condition of servicing by the borrower of credit debt and taking into account the level of ensuring credit operation. By results of classification of credit portfolio the category of each credit operation is determined: "standard", "under control", "substandard", "doubtful" or "hopeless".

The total debt on credit operations constitutes gross credit risk for the creditor.

For the purposes of calculation of reserves on covering of possible losses the net credit risk (in absolute measures) by reduction of the gross credit risk classified by risk degrees by the cost of acceptable providing is determined by credit operations.

Banks shall create and create reserves for compensation of possible losses on the complete extent of the net credit risk on principal debt weighed on the corresponding coefficient of reservation by all types of credit operations in national and foreign currencies.

Forming of reserve is not performed: on budget credits (1); on credit operations between organizations in system of one bank (2); on transactions of financial leasing if object of these transactions is the real estate; on the means placed by bank on the terms of subordinated debt; according to off-balance obligations on crediting (except the obligations provided to banks) according to which the bank shall not provide means on the first demand of the partner (i.e. on which the bank does not bear risk); on means in the foreign currency transferred to National Bank.

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(1) Budget credits - budgetary funds which are placed by bank in type of loan based on the contract with the manager of these means on which the bank does not bear credit risk.

(2) For banks from 100% the foreign capital - on credit operations with mother company if this company has credit rating not below than "investment class".

In case of konsortsiumny crediting only that part of the loan which is granted directly by this bank is subject to reservation in the leading bank.

1.6. excluded

1.7. Banks shall create reserve on all amount of the means placed on correspondent accounts in banks (residents and nonresidents) who are declared bankrupt or are liquidated according to the decision of authorized bodies, or are registered in offshore zones.

On the means placed on the correspondent accounts opened in nonresident banks, banks shall create reserve taking into account risk of the country according to requirements of Chapter 8 of this Provision.

Debt on the means placed on correspondent accounts in other banks (residents and nonresidents) who are declared bankrupt or are liquidated according to the decision of authorized bodies, it is determined by bank as hopeless.

1.8. The reserve under credit risks is divided into reserves under standard and non-standard debt on credit operations. Reserves under non-standard debt are created on the credit operations classified as "under control", "substandard", "doubtful", and also "hopeless".

The reserve under credit risks is created in that currency in which the debt is considered.

1.9. Banks shall perfrom calculation of reserves under standard and non-standard debt (taking into account terms debt repayment on credit operations) within a month in which credit operation is performed (or the agreement on its implementation is signed (3)). Banks shall perform forming of reserves monthly in full irrespective of the size of their income on risk groups according to outstanding amounts on credit operations (including to the provided obligations on crediting) as of the first following for reporting, prior to the due date for representation of turnover and balance balance (monthly).

The size of actually created reserve on credit operations of banks is controlled according to turnover and balance balance (4).

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(3) Agreement on provision of a guarantee and so forth.

The size of actually created reserve on credit operations of banks is controlled according to the monthly balance (4).

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(4) Control of data of turnover and balance balance means that forming of reserve is performed taking into account adjusting entries according to Regulations on forming of adjusting entries which are performed by banks of Ukraine, the approved resolution of Board of the National Bank of Ukraine of 09.10.2001 N 427 and registered in the Ministry of Justice of Ukraine 26.10.2001 for N 909/6100.

1.10. The debt on credit operations which is classified by bank as hopeless is written off for the provision account according to the procedure, established by National Bank.

1.11. Banks shall develop and approve intra bank regulations on procedure for carrying out credit operations and technique of evaluating financial condition of the borrower (the partner of bank) according to the decision of relevant organ of bank. These documents shall go upon the demand of authorized employees of National Bank for check of reliability of assessment of financial condition of borrowers, correctness of their classification and sufficiency of reserves under credit risks. Absence or failure to provide these documents for acquaintance to authorized employees of National Bank is considered the basis for negative conclusions concerning quality of assets and management of bank.

If the bank performs long-term lending of investment projects, then domestic situations of bank shall contain rules relatively about issue of such credit, technique of assessment of the investment project, analysis technique of the business plan of implementation of the investment project and its self-sufficiency, procedure for carrying out inspection of the borrower, technique of assessment of its investment creditworthness, determination of schemes of crediting of investment projects and regulations of preparation of decision making about provision of investment loan.

1.12. Banks can classify debt on credit operations and based on this classification to create portfolio of homogeneous consumer loans, and also reserve on this portfolio.

1.13. The bank shall exercise control of target use of granted loans in accordance with the terms of the credit agreement.

2. Determination of separate terms which are used in this Provision

Credit operations (credit) - type of the active transactions connected with provision to clients of means in temporary use or adoption of obligations about provision of means in temporary use under certain conditions, and also provision of guarantees, guarantees, avals, placement of deposits, carrying out factoring transactions, financial leasing, issuance of credits in the form of accounting of bills of exchange, in the form of repo operations, any continuation of repayment period of debt which is provided in exchange for obligations of the debtor concerning return of the outstanding amount, and also on the obligation of interest payment and other charges from such amount (payment deferral). Credit operations are classified depending on risk level and share on "standard", "under control", "substandard", "doubtful" and "hopeless".

Classification of credit operations is assessment of risk level on each credit operation taking into account financial condition of the borrower, condition of servicing by the borrower of credit debt and level of ensuring credit operation. Assessment of level of credit risk is performed according to procedure, established in Chapters 4, of 5, 6 and 7 these Provisions.

Credit risk - risk of failure to carry out by the borrower (the partner of bank) of obligations on credit operations (that is risk that payment by the borrower of percent and principal debt on credit operations will be carried out with variations from conditions of the credit agreement or will not be carried out at all).

"Standard" credit operations are transactions on which the credit risk is insignificant.

"Under control" are credit operations on which the credit risk is insignificant, but can increase owing to emergence of situation, adverse for the borrower.

Substandard" credit operations are transactions on which there is probability of untimely debt repayment in full amount and in the terms provided by the credit agreement;

"Doubtful" credit operations are transactions on which accomplishment of obligations from the borrower/partner of bank in full amount under the threat, probability of complete repayment of credit debt low.

"Hopeless" credit operations are transactions, the probability of accomplishment of obligations on which from the borrower/partner of bank is practically absent, the risk on such transactions is equal to outstanding amount on them.

Solvency - the borrower's capability (the partner of bank) timely to perfrom calculations for all types of the obligations.

Creditworthness - availability at borrowers/partners of bank of premises for receipt of the credit and its capability to return the credit and percent on it in full and in the terms caused by the agreement.

The investment project - the project which is implemented by borrowers (subjects of managing) on the terms of financial self-sufficiency and for which joint financing of the project by the borrower or other investors in the amount of at least than 20% of its cost is provided.

Crediting under the investment project - long-term lending of investment projects under future income (which the created/reconstructed company shall receive and at the expense of which repayment of the loan will be provided), which provides as assessment by bank of the investment project concerning its financial self-sufficiency, and practical implementation of this project (assessment of the business plan of project implementation). During assessment of implementation of the investment project by bank the borrower's capability effectively is determined to realize the investment project and to receive the planned results; reliability and stability of business in which the borrower, during the time necessary for project completion and return of the credit, taking into account by both the borrower, and bank of all risks which are available during crediting under the investment project is engaged.

Homogeneous consumer loans are the loans for current demands granted to the borrower - to physical person, and total amount them according to one or several credit agreements (irrespective of providing availability) does not exceed 20000 hryvnias.

The portfolio of homogeneous consumer loans is total amount of debt on homogeneous consumer loans (balance sheet accounts 2202, of 2203, of 2207, 2620 A, 2625 A), provided by bank on current demands to borrowers - to physical persons with which in credit agreements there is written consent of the borrower to collection, storage, use and distribution through bureau of credit histories of information on him and the information under these agreements is provided by bank in bureau of credit histories.

Soft credit - the loan which is granted by bank to the borrower on more favorable conditions than it is established by internal documents of bank which determine its credit and accounting policy.

Bad debt - debt on credit operation which is classified by bank as hopeless according to requirements of this Provision.

3. Criteria of classification of credit operations

3.1. For the purpose of calculation of amount of reserve under credit risks and determination of net credit risk the bank shall analyze credit portfolio.

The analysis of credit portfolio and classification of credit operations (gross credit risk) is performed by such criteria:

assessment of financial condition of the borrower (partner of bank (5));

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