The National Bank of Ukraine (NBU), which at the end of 2019 announced that banks would account for 100% of the minimum operational risk in the capital adequacy ratio (H2) from the beginning of 2022, has decided to introduce this requirement in two stages, starting from 50%.
"The consideration of the minimum amount of operational risk when calculating capital adequacy ratios should be carried out using the following ratios: from December 31 of this year - 0.5, from December 30, 2022 - 1," the regulator said in a report on Friday.
The NBU said that the changes were approved by Board resolution No. 121 dated November 18, 2021.
The National Bank said that the decision was made after discussions with the banking community, as well as taking into account the results of the NBU's assessment of the stability of banks and the banking system of Ukraine in 2021, which indicate the sector's ability to provide capital coverage of 50% of the size of the operational risk, starting next year.
As reported, the NBU, as part of the implementation of the requirements of European legislation and the recommendations of the Basel Committee on Banking Supervision on December 24, 2019, by Resolutions No. 156-157, determined that the value of capital adequacy will be calculated not only taking into account credit risk and open foreign exchange position, but also operational risk.
According to this approach, the size of the bank's operational risk is determined taking into account the size of its income and expenses related to its core business. The bank's income and expenses are divided into three components: a component of net interest income/expense and dividends, a service component, and a financial component. At the same time, to calculate the volume of each of the three components, the average value over the last three years is taken.
The central bank has established that banks will calculate the minimum operating risk once a year based on audited annual financial statements.
"New capital requirements will be introduced gradually. Test calculations of the amount of operational risk will begin in 2020 after the publication of the annual financial statements for 2019. Banks will be required to cover operational risk from January 1, 2022," the National Bank said at the time.
Operational risk is the likelihood of losses or additional losses or shortfalls in the planned income due to deficiencies or errors in the organization of internal processes, deliberate or unintentional actions of bank employees, other persons, failures in the bank's information systems or as a result of external factors. Operational risk includes legal risk, but must exclude reputation risk and strategic risk.