World Bank calls for new stress tests for Ukrainian banks

On Friday the World Bank detailed a list of requirements for Ukraine to receive the second USD 350 mln tranche of a loan to support the banking sector, which included a new round of stress tests for Ukrainian banks, daily Kommersant reported today. World Bank representatives said they expected the new tests to show that banks actual capital adequacy ratio is less than claimed and that several banks would be forced to raise new capital. The World Bank board of directors voted to allocate the first USD 400 mln tranche of the total USD 750 mln five-year loan facility on September 17; the second tranche is expected to be transferred in 2010. The last round of stress tests for Ukrainian banks was conducted in late 2008, with the results announced in late January 2009.  Mykyta Mykhaylychenko:  Some banks, mostly with local owners, currently have very low provisions against NPLs (and, hence upward biased book equity, according to UAS) although there are no reasons to believe that the quality of their assets is better than that of their competitors. Ideally, this new test would reveal these problems and represent fairer picture of Ukrainian banks’ capital and CAR. Furthermore, banks might now have some additional incentives to accumulate higher provisions, because last month they were allowed to include 100% of their expenses for provisions in taxable income. Previously, all provision expenses exceeding 10% of loans, were not tax deductable.