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Money and credit - Ivanov V.M.

25.5. Supervision of the activities of commercial banks

The National Bank of Ukraine supervises the activities of commercial banks, their branches, branches, representative offices in Ukraine. It is aimed at ensuring the stability of the banking system, protecting the interests of depositors by reducing risks in the activities of commercial banks. The content of supervision is determined by the powers established by the Law of Ukraine "On Banks and Banking Activities".

The supervision system is aimed at reducing external and internal banking risks.

External risks include:

• liquidity risk (inability of the bank to ensure uninterrupted payment of its obligations to customers);

• currency risk (losses from adverse changes in the exchange rate in an open currency position);

• discount rate risk (losses from changes in the interest rate established for NBU loans in the conditions of a fixed interest rate on loans granted);

• risk on securities (losses from changes in the exchange rate of securities in the bank's portfolio).

Internal risks include commercial risks related to the human factor (staff qualifications and business qualities of managers, executive discipline, quality of audit service, etc.), as well as operational and technical risks, reflecting the degree of operability of systems that ensure the bank's internal work: security systems, accounting, material and technical means, communications, etc.

The procedures for registering banks, licensing, audits, and inspecting the activities of a commercial bank by NBU employees are aimed at reducing internal risks.

The supervision function is carried out by the NBU Banking Supervision Authority. Supervision operations are carried out by the regional NBU departments in accordance with the program brought by it, and certain tasks of the Banking Supervision Authority.

Commercial banks are required to submit the following reporting information to the NBU every month:

• balance sheet with the application of the calculation of economic standards;

• loan portfolio report;

• report on the securities portfolio;

• report on currency and currency position;

• interest rate risk report;

• a report on the provision and repayment by insiders of a bank loan.

In addition, a commercial bank is obliged no later than 5 days after drawing up the conclusions of a monthly or annual audit to submit to the NBU a report on the work of the external audit, and the next day after drawing up the corresponding loan agreement, a report on "large" loans. The Banking Supervision Authority also has the right to require the bank to provide any other information necessary to fulfill its duties, even if it is classified as a bank official or commercial secret. However, the information received cannot be disclosed without the consent of a commercial bank.

Banking supervision is differentiated in three main areas: general supervision, intensive supervision and high-level supervision.

General supervision extends to stable banks that are financially stable, comply with economic standards, applicable laws and NBU guidelines, and have a good business reputation. It is carried out by the regional offices of the NBU. General supervision consists in monitoring compliance with economic standards and checking other reports submitted by banks. Information on detected violations is sent to the NBU Board for appropriate decisions.

Intensive supervision extends to banks that periodically violate economic standards, and also allow other minor violations, are not financially stable.

A high degree of supervision is carried out in relation to banks that systematically (i.e., two or more times during the quarter) violate economic standards and commit other gross violations or their financial situation is unsatisfactory.

When deciding on the use of intensive supervision and supervision of a high degree, the NBU Banking Supervision Department inspects banks, their branches, branches and representative offices, aimed at identifying the causes of violations and shortcomings in the bank. NBU inspectors verify the legality of the operations performed, the activity of internal and external audits, the status of accounting, the reliability of reports, constituent and other documents. Based on the results of the inspection, information is sent to the bank's management, which indicates the reasons for the identified shortcomings, assesses the financial situation of the bank, its capabilities and ways out of this situation. NBU requirements are binding.