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Only 10 banks out of 30 audited successfully pass stress test—NBU

Author
Valery Moiseev

In 2021, the National Bank, after a one-year break, conducted stress testing of the 30 major Ukrainian banks. According to its results, the following banks are recognized as stable:

  1. Privatbank
  2. Alfa Bank
  3. Raiffeisen Bank
  4. UkrSibbank
  5. OTP Bank
  6. Credit Agricole Bank
  7. Procredit Bank
  8. Idea Bank
  9. PUMB
  10. A-bank.

Almost all of these banks have foreign capital and only one of them is state-owned.

Banks that have not passed the test must rectify failings by June 30, 2022.

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Overall, the stress test results were significantly better than in 2019.

What the National Bank audited

During stress testing, the capital adequacy level of each bank was assessed for two scenarios (baseline and unfavorable). The target capital adequacy levels were determined taking into account the bank's balance sheet at the beginning of 2021, however, for many banks they were reduced taking into account the measures actually taken and planned in the restructuring programs.

The banks that fail the stress test do not have enough money to meet their obligations. All banks the capital requirement was determined for have already developed capitalization or restructuring programs and agreed them with the National Bank.

Publishing the test results, the NBU noted that the scenarios were developed in such a way as to identify the possible impact of the main risks on the bank's activities in its current state.

The stress test results should be interpreted solely in the context of the model key assumptions:

  • the banks’ balance sheet was considered static, that is, it was impacted only by changes in the quality of assets and the exchange rate. In practice, banks' assets are growing, and the structure of their balance sheets is changing;
  • capitalization of current profits was assumed during the entire forecast period. In fact, banks often decide to pay profits to shareholders.

The modeling took into account the planned regulatory changes.

"The purpose of stress testing is to identify vulnerabilities, point them out in dialogue with banks, and find an opportunity to increase their resilience. For this, the banks have developed restructuring programs. By fulfilling them, they will reduce their own risks and ultimately foster achieving the stability of the entire system," Pervin Dadashova, Director of the NBU Financial Stability Department, noted.

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