In its latest meeting on December 20, 2018, the Financial Stability Council (FSC) adopted the “Recommendations for State-Owned Banks on Working with Non-Performing Loans (NPLs)” (hereafter referred to as “Recommendations”).
The adoption and publication of these Recommendations was stipulated in the Memorandum between Ukraine and the IMF. It shall contribute to the reduction of one of systemic risks for the financial stability in Ukraine related to the excessive volume of non-performing loans in the banking system.
The Recommendations were developed in line with the requirements of the Law of Ukraine “On Financial Restructuring” by the working group set up by the FSC and consisting of representatives of the National Bank, the Ministry of Finance and the State Deposit Fund. They only apply to the restructuring of big loans exceeding 5% of the banks’ regulatory capital and determine basic requirements needed to ensure a fair and transparent restructuring process as well as the protection of the state interests concerning state-owned banks.
The Recommendations are not legally binding, but the FSC reserves the right to receive explanations from state-owned banks that do not comply with them. State-owned banks will be reporting to the FSC every six months about their progress in restructuring non-performing loans. The first report is expected in February 2019.
The Recommendations entered into force on January 9, 2019, and remain valid until the enactment of the National Bank’s regulation on the organization of the management of non-performing assets by banks, which is currently being developed jointly with the World Bank.
The Recommendations are valid for state-owned banks, but they can also be applied by private banks.