26 February 2019
National Bank of Ukraine (the NBU) has published its approach to stress testing
of banks in 2019, which is scheduled for launch in May.
year, stress testing is focused on the analysis of banks’ consumer loan portfolios,
which have been growing rapidly over the past two years. Currently, the risks
associated with such growth are generally insignificant; however,
underestimation of the credit risk by banks and a decline in the lending
standards may increase the vulnerability of the banking sector. Therefore, the NBU monitors the
issue regularly. The adverse scenario envisages a drastic decline in the
quality of loans issued to individuals. Furthermore, for consumer loans (except
mortgages) that have been nonperforming for over a year, the credit risk will
be set at 100%. In addition, under the adverse scenario, assumptions about the
dynamics of the interest rate spread and net interest margin will become
tighter. It will be assumed that rates on loans and other exposures of banks
will remain unchanged and that the value of liabilities will rise.
be reminded that stress testing is one of the multiple stages of the banks’
resilience assessment. Scheduled for
stress testing this year are 29
institutions that jointly account for 93% of the banking system’s assets.
with last year, banks will be stress-tested based on the baseline and adverse
The baseline macroeconomic scenario is built
around published NBU forecasts, except for the exchange rate forecast based
on the consensus forecast data.
The adverse scenario is based on hypothetical
assumptions about macroeconomic indicators that drive the materialization of
significant credit and market risks. More specifically, the credit risk
arises from deterioration of asset quality. The market risk comprises the
interest rate risk that arises from changes in the interest rate spread and
net interest margin, and the FX risk associated with the effect of the
The macroeconomic indicators used for this
scenario do not represent the NBU’s alternative forecast. In line with
international practices, assumptions about these indicators are intended to
build a severe but realistic scenario under which banks would incur
information about macroeconomic scenarios to be used in stress testing in 2019
is available here.
NBU adheres to the approach whereby the largest corporate borrowers undergo
individual stress tests: the amount of their expected credit losses will be
assessed on a per-borrower basis.
to the resilience assessment findings, the regulator will determine the
required levels of the regulatory capital adequacy ratio (N2) and the common
equity adequacy ratio (N3). Banks are required to comply with the minimum
ratios under the baseline scenario (7% for N3 and 10% for N2) and with less
strict requirements for said ratios under the adverse scenario (3,5% and 5%,
respectively) throughout the entire three-year-long forecast period.
completion of the resilience assessment, banks that are found to have failed to
meet capital requirements will be obliged to develop and implement a capital
increase plan and/or an action plan to maintain or restore their level of
capital. Further information on the findings of the resilience assessment will
be published in September; bank-specific data will be published on the NBU’s
website in December 2019.
stress testing approaches were approved by NBU Board Decision No. 157-D On
Amendments to the Terms of Reference on Assessing Resilience of the Banks and
the Banking System of Ukraine dated 22 February 2019.
2018, the NBU launched the resilience assessment of banks that envisages, among
other things, the stress testing of the banks that are identified by the NBU in
a separate decision. The stress testing under the baseline and adverse
scenarios aims to assess indicators from banks’ financial statements (balance
sheets and profit and loss statements) and the required level of capital for
the three years from the reporting date.