Troubled assets in banks: the regulator aims to enhance oversight.

The National Bank has released an updated draft of the regulation on the organization of the management process for problem assets in Ukrainian banks for public discussion.

This was reported by the NBU's press service.

The draft aims to:

• take into account changes in European banking practices regarding the enhancement of the control functions of the second line of defense;
• strengthen the requirements for the bank's board to ensure oversight of the timely prevention, detection, and resolution of conflicts of interest that may arise in the management of problem assets;
• increase the effectiveness of the problem asset management process by reinforcing the role of the risk management system, which is based on the distribution of responsibilities among the bank's divisions using a three lines of defense model;
• ensure an appropriate level of independence for the chief risk officer in systemically important banks in the management of problem assets, considering the scale of operations, types, and complexity of transactions carried out by such banks.

The regulator proposes:

• that the bank's board take measures to prevent the occurrence of real and potential conflicts of interest during the organization of the problem asset management process;
• to allow the chief risk officer to lead and/or subordinate the non-performing assets (NPA) unit. It is noted that the board may make such a decision "based on the need to prevent the emergence of real and/or potential conflicts of interest, as well as the results of assessing the impact of additional burdens on the effectiveness of the chief risk officer's performance of assigned functional duties and ensuring the implementation of the problem asset management strategy." This does not apply to systemically important banks.
• the NPA unit of a systemically important bank may be headed by the head of the institution (chairman/deputy chairman and/or member of the bank's management board).

"Comments and suggestions on the draft are accepted according to the form for submitting comments and suggestions until January 24, 2025, inclusive," the NBU noted. It is worth mentioning that the project was already proposed to the public in August 2024.

Background. Previously, Mind reported that in 2024, there were 14% more transactions through the SEP than in 2023.