NBU Introduces a New Capital Instrument for Banks
The National Bank of Ukraine introduces a new capital instrument with conversion /write-down feature.
The new instrument will open new possibilities of boosting the Ukrainian banking system capitalization and is the first step towards the reformed capital requirements to be introduced in 2020.
Key characteristic of the instrument is that it can absorb losses through a conversion or write-downs using the investors’ money and not at the cost of other creditors or the state.
when the capital adequacy ratio of the issuing bank (without account for the instrument) falls below 6.25%
the common stock acquisition allowing to increase the authorized capital of a bank. In case of a write-down, the issuing bank will receive income that will absorb its going concern losses.
The new instrument is a long-term asset (with maturity of not less than 50 years) that will be gradually depreciated during 15 years to the maturity date.
Currently the instrument will be included in Tier 1 capital of a bank, and after the new requirements to the capital structure are in place, it will become a part of additional Tier 1 capital. A bank requires the NBU approval to include the instrument in its capital.
Requirements to the instrument
The new instrument is introduced by NBU Board Resolution No. 148 of 22 December 2018 On Approval of Amendments to the Instruction on Banking Activity Regulation. It will come into force on 27 December.