A recently conducted financial stress test by the National Bank of Ukraine (NBU) has shown that the country’s banks are generally well capitalized but has recommended that they increase their regulatory capital by as much as Hrn40 billion ($5 billion). The suggestion follows a big jump in bad debt levels, which have soared to 25% of total lending in the wake of the global credit crunch and associated economic recession.
US rating agency Moody’s Investors Service believes that, if acted upon, the central bank’s recommendations will be positive for the banking sector as a whole as it will materially improve the ability of the 61 licensed Ukrainian lenders to absorb credit losses. The regulator expects Hrn30 billion to be injected as tier 1 or tier 2 capital by the banks’ shareholders, with the remainder coming from a reduction in banks’ loan-loss reserves.
