The National Bank has required banks to prepare a “contingency plan” in advance

The National Bank has approved new rules that require commercial banks to prepare an action plan in advance in case their financial condition deteriorates. This is known as a financial recovery plan.

Now, every bank must have a clear and detailed scenario of what it will do if it encounters serious problems — for example, if its capital declines, it experiences a cash shortage, or it begins to lose depositors.

Thus, banks are required to:

• outline in advance how they will emerge from the crisis;
• define indicators that will show that the situation is deteriorating;
• prepare measures — from cutting costs to raising additional capital;
• regularly update these plans and submit them to the National Bank.

Large, systemically important banks must do this every year, while others must do so at least once every two years. If there are significant changes in the bank, the regulator may require the plan to be updated ahead of schedule.

In particular, significant changes in the legal, financial, or business situation may include:

• significant losses in the bank, amounting to more than 10% of its equity capital;
• reorganization of the bank (merger, acquisition) or investment by the bank in the shares of another legal entity, if the amount of the investment exceeds 10% of the bank's equity capital.
• withdrawal of the bank from the banking group;
• events in the area of risk management and internal control, namely:

an external auditor expressing a qualified opinion, an adverse opinion, or a refusal to express an opinion;

termination of the powers of the chairman of the board of directors/management board, two or more members of the board of directors, or three or more key employees of the bank on grounds related to their business reputation;

an operational event that threatens the continuity of the bank's activities.

• other events that have a material impact on the bank's risk profile and require a review of the recovery plan, including a material change in legislation or regulation, the introduction of restrictions/sanctions against the bank and its major shareholders.

The purpose of the new requirements is to protect depositors and customers and prevent sudden crises in the banking system. If a bank encounters difficulties, it must respond quickly and according to a pre-approved plan, rather than in an emergency mode.

If these requirements are not met or a weak plan is presented, the National Bank has the right to apply measures of influence, up to and including strict supervisory decisions.