The National Bank of Ukraine has concluded its 2021 sustainability stress testing of banks in Ukraine. The results demonstrated that the Ukrainian banking industry has become more resilient to external shocks.
Stress testing uses computer-simulated models to analyze how banks cope with a series of economic scenarios, such as rapid global economic turndown, disasters, and the collapse of industries.
A total of 30 Ukrainian banks, accounting for 93% of all banking assets in the country, underwent stress testing. The National Bank of Ukraine has been conducting sustainability stress testing on banks since 2018.
An independent auditor confirmed that, in general, banks showed positive performance indicators.
The NBU stated that “the banking sector is now quite resilient and ready for the planned increase in capital requirements, despite the impact of last year’s crisis.”
There are, however, areas in the Ukrainian banking sector that need improvement.
Out of the 30 banks tested, 20 revealed problems with their capital risks, lack of capital or pre-capitalization, requiring fundamental restructuring or transformation.
In times of crisis, banks must possess a satisfactory level of capital in the case their investments are not profitable and they need to absorb losses while maintaining normal function. The NBU expects larger banks to have higher levels of capital.
Capital requirements for banks have decreased by Hr 32.1 billion ($1.2 billion) over the past two years.
The NBU stated that it wants to ensure that Ukrainian banks maintain strict capital requirements or reduce their risk profiles to ensure the sustainability of the banking sector.
Higher capitalization and improved loan portfolio quality helped Ukrainian banks survive the coronavirus-related economic shock. The NBU skipped stress tests in 2020 due to the pandemic.
Detailed information about the results of the sustainability stress test is expected to be published in Dec. 2021 on the official website of the NBU.
