As part of Ukraine’s harmonization of banking regulations with European Union standards, the National Bank of Ukraine (NBU) initiated the transition to a new capital structure for the banking system. This decision, made at the end of 2023, required banks to significantly transform their approaches to calculating and reporting regulatory capital. CS was tasked with developing and implementing a comprehensive solution to enable its client banks to successfully adapt to the new regulatory requirements.
Challenges
The shift to a new capital structure introduced numerous challenges across Ukraine’s banking system. Implementing a new calculation for regulatory capital and new capital adequacy standards required adaptation to a three-tier structure, replacing the familiar two-tier system. Changes to the capital calculation and reporting methodology meant banks had to undergo substantial modifications to internal processes and information systems. This was further complicated by a tight deadline, as the new requirements were to be effective by August 5, 2024, adding extra pressure on all parties involved.
In this context, CS faced the complex task of creating and implementing a solution that would allow its client banks to effectively transition to the new capital structure, ensuring:
- Full compliance with the NBU’s new regulatory requirements.
- Minimization of operational risks during the transition.
- Continuity of business processes for banks.
- Automation of calculations and reporting according to the new standards.
- Real-time control over compliance with the new standards.
The nature of the task required the development of not only a technical solution but also a methodological approach. While the NBU provided general principles based on European standards, specific implementation mechanisms had to be developed and coordinated throughout the project. A further challenge was ensuring the solution’s flexibility; given the novelty of the approach and the possibility of future refinements by the regulator, the system needed to be adaptable to potential changes without requiring major technical overhauls.
Thus, the CS team’s goal went beyond updating the software to creating a comprehensive solution that included a methodological foundation, technical implementation, and support system capable of ensuring a smooth transition for banks to the new capital structure and effective operation in the updated regulatory environment.
Solution
To address these challenges, CS developed a comprehensive solution covering key aspects of the transition to the new capital structure:
Methodology Development: CS analyzed the NBU’s new requirements and European practices. In collaboration with client banks and consultations with the NBU, CS developed a calculation and reporting methodology for the new capital structure.
Modernization of B2 Core Banking System: The new capital calculation methodology, accounting for the three-tier structure (Tier 1 Core Capital, Tier 1 Additional Capital, and Tier 2 Capital), was implemented in B2.
Reporting System Update: CS created a new reporting file, 6RX, to meet the requirements of the “Regulation on the Procedure for Determining Regulatory Capital for Banks of Ukraine” №196 and NBU Resolution №65 “On Approval of the Regulation on Financial Monitoring by Banks.” Additionally, existing reporting files (42X, C5X, 7SX, 6NX) were modified, and the credit risk calculation and standards calculation were adapted to align with the new capital calculation methodology.
Process Integration and Automation: Integration of new and modified files with existing B2 components was achieved. New mechanisms for automated reporting generation and standard calculation in accordance with the NBU’s new requirements were implemented. Bank day-end procedures were modified to include new calculations.
Regulatory Compliance Assurance: The system now automatically calculates and monitors the new regulatory capital and capital adequacy standards, with the ability for daily tracking.
Results
The implementation of CS’s comprehensive solution was a pivotal factor in the successful transition of Ukrainian B2 banking clients to the new capital structure. By August 5, 2024, all CS client banks began operating under the new rules, fully complying with the updated NBU regulatory requirements.
Thanks to automation, banks can quickly and accurately generate required reports, significantly reducing the risk of human error while enhancing the precision and reliability of financial reporting.
Nadiya Zavhorodna, the Head of CS Support Department
The transition of Ukraine’s banking system to a new capital structure was a challenging process for all stakeholders. We are grateful to our client banks and the National Bank of Ukraine for their trust and cooperation on this important project. Through our joint efforts, we successfully adapted the B2 Core Banking System to the new requirements, providing banks with tools for daily calculation and control of capital standards. Together, we developed an innovative solution that meets the latest regulatory standards and the needs of our clients. We will continue improving our system to provide banks with maximum support in a dynamic regulatory environment.
The implementation of the new CS solution not only enabled banks to meet new regulatory requirements but also significantly strengthened their capital management capabilities and improved the efficiency of operational processes. This is an important step toward harmonizing Ukraine’s banking sector with European standards and enhancing its competitiveness on the international stage.
