Banks which violate capital adequacy requirements after stress testing by the National Bank of Ukraine (NBU) should increase capital or undergo reorganization, otherwise they will be recognized as insolvent, according to a government-drafted bill on measures to facilitate banks' capitalization and restructuring, which was registered in parliament on Tuesday.

The bill states that the base-case macroeconomic scenario foresees at least a 7% adequacy rate for Tier 1 capital, while the low-case scenario has it at least 4.5%.

If a bank fails to meet requirements after stress testing, it must submit a capitalization or restructuring plan to the NBU by a stated deadline. Otherwise, it will either be recognized as insolvent or have its capital increased through state participation.

The conditions of banks' additional capitalization with the participation of the state, which were listed in the bill, are the same as the ones stipulated in cabinet resolution No. 633 dated November 19, 2014.

The state may participate in boosting a privately owned bank's capital to the required level on the condition that the bank's stockholders agree that the state will receive in ownership or management at least 75% plus one share, and if the bank gives its consent to a reduction in the bank's charter capital by the maximum sum of losses detected by audit checks.

The resolution also states that the shareholders in a bank undergoing additional capitalization should also decide at a meeting to boost charter capital at the expense of contributions by shareholders whose stake is over 10%. The Cabinet suggests that requirements for members of supervisory boards, the board and the audit commission be eased: contributions made by them will be voluntary.

Other conditions include consent to audit checks at the request of the Finance Ministry, and a reduction in charter capital to the amount of losses identified by such checks. Banks should also agree to a candidate from the Finance Ministry being appointed as an adviser to the chairman of the board, to monitor the bank's performance.

The bill also introduces a simplified procedure for additional capitalization or reorganization of a bank.

As was reported, during the first review of the Stand-By Arrangement made with the International Monetary Fund in August 2014, the Ukrainian government and the NBU agreed that the state would develop a bailout program through recapitalization, at the expense of budget funds, only for banks whose assets or deposits account for over 2% of the entire banking system.