Deposit Guarantee Fund - DGF MANDATE AND POWERS Ms. Lapaieva Natalia Head of Strategy, Regulation and Methodology Department Deposit Guarantee Fund UKRAINE April, 2014 Kiev 1

2 Financial safety net in Ukraine National Bank of Ukraine (NBU) (banking regulation and supervision, lender of last resort to the banks, central bank refinancing, monetary policy authority) STATE COMMISSION FOR REGULATION OF FINANCIAL SERVICES MARKETS (governmental regulation and supervision of the non-bank financial institutions) DEPOSIT GUARANTEE FUND (individual deposits payout upon deposit inaccessibility) MINISTRY OF FINANCE (financial policy of the State, policy in the area of state financial control) NATIONAL SECURITIES AND STOCK MARKET COMMISSION (state regulation and supervision of issue and turnover of securities and their derivatives )

DGF (general information) Number of participants – 179 banks (as of ) PJSC «State Savings bank of Ukraine» isn’t a DGF member (historically 100% guarantee of State) Main purpose is to protect the rights and legitimate interests of bank depositors, strengthen the public trust in the Ukrainian banking system, stimulate investments in it, and ensure an efficient procedure of insolvent bank resolution and liquidation of banks (pay-box with extended powers) Coverage limit – UAH. (~ EUR):  400 times higher than in 1998  25 times larger than the average households deposit  Payout amount in 2001–2013 is almost 7 billion UAH 3

recovered % of DGF creditor claims (total for 2001 to 2013). DGF has paid out 7 billion UAH to 400 thousand depositors. recovery of DGF creditor claims alleged in accordance with the new law (Bank resolution mandate): Within first year of resolution of 2 failed banks - recovered 8,37% of DGF creditor claims 4

Classification of a bank to problem banks category: a bank allowed reduction of regulatory capital and/or CAR, as established by the law and/or regulatory and regulations of the National Bank of Ukraine, by 10 and more percent during the reporting month; a bank didn’t fulfill demands of depositors and other creditors, which became due, during 5 or more working days running; systematic violation by a bank of the Laws of Ukraine, regulating the issues of prevention of and counteraction to legalization (laundering) of revenues, collected in criminal way or terrorism financing; the bank has violated legal requirements as for procedure of submitting and/or disclosure of reporting and, among other things, has submitted to the National Bank of Ukraine with and/or has disclosed inadequate reporting, which resulted in essential perversion of indicators of the bank’s financial standing; regular failure to establish effective operations and/or adequacy of risks management system that threatens the interests of depositors or other creditors of a bank. 5

Classification a bank to insolvent banks category: failure to bring its activities into compliance with legal requirements and with regulations of the National Bank of Ukraine among them after being classified to problem banks category, but not later than within 180 days since recognizing it as a problem bank; decrease of regulatory capital amount or CAR to one-third of the minimal level, prescribed by the law and/or regulations of the National Bank of Ukraine; non-performance by the bank of 10 and more percent of its obligations to depositors and other creditors during 10 working days running. 6

Application of new resolution process methods The insolvent bank shall be resolved in one of the following ways: 1)liquidation of the bank with direct deposit payout by the DGF in accordance with the procedure established by this Law; 2) liquidation of the bank with alienation of its assets and liabilities, in whole or in part, in favor of the assuming bank; 3) alienation of assets and liabilities, in whole or in part, of an insolvent bank in favor of the assuming bank with withdrawal of the insolvent bank’s license and its further liquidation; 4) incorporation of a bridge bank and sale of the bridge bank to an investor accompanied by a transfer of the insolvent bank’s assets and liabilities to the investor, and further liquidation of the insolvent bank; 5) sale of the insolvent bank to an investor. 7

The advantages of the new Law of Ukraine “On Households Deposit Guarantee System” The term, for which the provisional administration of the bank is implemented, shall not exceed 3 months, and in case of systemic banks – 6 months The notion itself of payout moratorium doesn’t exist. During Provisional Administrations the insolvent bank shall make deposit payouts under the expired agreements and individual bank account agreements. The insolvent bank shall pay out the deposits, including interest accrued on the date when a decision was made by the NBU to classify the bank as insolvent. The said payouts shall be made within the marginal guarantied amount of deposit payout. The guaranteed amount payout shall be made within seven days from the approval of the decision of the NBU on withdrawal of a banking license and liquidation of the bank. The liquidation procedure of the failed bank could not last more than 2 years 8

Application by DGF of remedial measures For the violations related to the household deposit guarantee system’s legislation and DGF regulations DGF may apply financial sanctions to banks (from 0,04% to 0,1% of the nominal capital) and impose administrative fines to banks managers (from 400 to 1000 of the legislatively stated personal exemption). 9

10 Bridge bank According to the Law of Ukraine “On Households Deposit Guarantee System” the DGF shall adopt a decision based on the resolution plan to create a bridge bank. On the 20-th of august in 2013 y. DGF Executive Directorate was explanatoried the Statute about regulation of establishment, registration of a shares issues, issuing of the banking license and general license on realization currency operations to a bridge bank.

11 Bridge bank Based on the resolution plan, the DGF shall adopt a decision to create a bridge bank by allocating a part of the insolvent bank’s assets and liabilities. A bridge bank shall be incorporated as a public joint-stock company. The authorized capital of a bridge bank shall be created at the amount that complies with minimal requirements to authorized capital of a public joint-stock company – hgr. ( $). The requirements established by the National Bank of Ukraine as to the mandatory prudential regulations, currency limits, quota for mandatory reservation of funds on a bank’s correspondent account with the National Bank of Ukraine, creation of reserves to cover asset losses shall not apply to a bridge bank.

DGF development Strategy The principal objective of the Strategy: Approximation of DGF operations by the end of 2017 to the provisions of the Core Principles for effective deposit insurance systems. Limitation of the Strategy: The Strategy objectives are limited by DGF mission and current competence of a deposit insurer. All other issues of private finance guarantee systems development are beyond the scope of DGF competence and are not subject to this Strategy. 12

Strategically ways of DGF development 1. Covering by DGF guarantee the funds on Entrepreneur's accounts 2. Introduction of a functional risk-based system of regular contributions to DGF (differentiated contributions) 3. Strengthening the powers of DGF with regard to the mechanisms and procedures of dealing with assets of insolvent banks in the process of bank resolution 13

THANK YOU FOR YOUR ATTENTION! 14