NBU increases lending potential of banks by 1.5 times with new capital structure and requirements for its adequacy

The National Bank, together with the adoption of the Lending Development Strategy, updated the minimum requirements for capital adequacy standards for banks under a new (three-tier) structure, and from August 5, 2024, banks must comply with the standards: fixed capital adequacy level 1 - at the level of 5.625%, tier 1 capital adequacy - 7.5% and regulatory capital adequacy - 10% and introduced a number of transitional provisions.

“According to the NBU, the transitional provisions preserve the capital reserve of banks necessary to cover the risks of martial law and ensure the interests of depositors. At the same time, taking into account the transitional provisions, the potential of banks to increase the loan portfolio will increase by 1.5 times compared to the current reserve,” the National Bank indicated in a press release on Monday.

The regulator added that the updated standards are aimed at further ensuring the stability of the banking system, protecting the interests of bank depositors and maintaining financial stability.

As the National Bank clarified, the transitional provisions provide, in particular, for the application of a step-by-step schedule for achieving the minimum value of the regulatory capital adequacy standard. Namely: from August 5 to December 31, 2024 - in the amount of at least 8.5%, from January 1 to June 30, 2025 - at least 9.25%, from July 1, 2025 – no less than 10%.

The NBU also granted banks the right to include in tier 1 fixed capital the amount of profit for the first half and nine months of 2024 without prior approval by the regulator and a review of interim financial statements. At the same time, the amount of profit must be reduced by the amount of dividends determined to be paid from such profit, and the period for including such profit in capital is limited to the date of the annual general meeting based on the results of 2024.

In addition, tier 1 fixed capital may also include funds received by the bank as payment for common shares or aimed at increasing their nominal value. Banks have the right to include such funds in capital during 2024, which will facilitate the completion of measures already taken by banks to recapitalize them, the National Bank believes.