National Bank Has Changed the Rules of Lending to Investment Objects

Friday, June 25, 2021
National Bank Has Changed the Rules of Lending to Investment Objects

The National Bank of Ukraine is introducing new approaches to assessing credit risk for specialized types of lending, which include project, facility financing, and financing the construction acquisition of real estate that generates income

The updated requirements improve the current approaches to the assessment of loans for investment projects established by the Regulation on determining the size of credit risk for active banking operations by Ukrainian banks, the press service of the NBU reports.

The updated methodology complies with the principles and recommendations of the Basel Committee on Banking Supervision, the requirements of European legislation, is based on the approaches of international rating agencies and analysis of statistical data of Ukrainian banks. The assessment of such loans cannot be carried out according to the standard model defined by the National Bank for legal entities, since the source of their repayment is the future cash flows from the project. Consequently, at the time of issuance of such loans, there is no relevant actual financial data of the borrower that can be used to estimate the probability of default (PD) according to the standard methodology

According to the updated methodology, the determination of the class of the debtor for a specialized loan will be carried out using a multifactor model, which includes both quantitative indicators and qualitative characteristics that reflect the financial indicators of the project, the risks of its implementation, the sustainability of the project initiator and the level of protection of the interests of the creditor bank. The model is weighted, which provides for the accounting of established indicators and characteristics with certain weighting factors depending on the type of specialized lending and the stage of project implementation (pre-operational or operational). This approach ensures that the peculiarities of various types of specialized lending are taken into account, as well as greater sensitivity and accuracy, which made it possible to reduce the ranges of PD values ​​of debtors.

The regulator is improving the methodology for assessing specialized loans in order to simultaneously provide a reliable assessment of risks and help expand the capabilities of the Ukrainian banking system to support the country’s economic growth.

The introduction of new requirements for the assessment of specialized loans will occur in stages:

  • until September 20, 2021 development revision by banks of internal banking regulations;

  • as of November 1, 2021, and January 1, 2021 calculation of credit risk in a test mode with informing the National Bank in the prescribed form about the results of the calculation;

  • starting from December 31, 2021 calculation in accordance with the updated requirements of Regulation No. 351 of the amount of credit risk for specialized loans (for loans issued after October 01, 2021);

  • until December 31, 2022 transition to the calculation of the credit risk for investment loans granted before October 1, 2021, using the specialized lending assessment model

During this transitional period, banks are entitled to:

  • apply during the determination of the value of PD of a debtor-legal entity the procedure provided for the evaluation of investment projects, or the procedure provided for the Z-model;

  • when determining the coefficient of participation of the project initiator in financing the project (financial leverage), not apply the norm in terms of limiting the excess of the number of funds contributed by the project initiator under agreements, the terms of which provide for the return of these contributions after the debtor-legal entity has fully repaid obligations for a specialized loan, over the amount contributions made on a non-refundable basis.

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