Decision on the manner of applying the bail‑in tool and on the manner of performing write‑down and conversion of the relevant capital instruments and eligible liabilities

Pursuant to Article 47 paragraph 1 item 6 of the Law on the National Bank of the Republic of North Macedonia (Official Gazette of the Republic of Macedonia No. 158/10, 123/12, 43/14, 153/15, 6/16 and 83/18 and Official Gazette of the Republic of North Macedonia No. 110/21, 74/24 and 16/25) and Article 33 paragraph 4, Article 36 paragraph 7, Article 38 paragraph 3, Article 39 paragraph 4, Article 43 paragraph 3 and Article 44 paragraph 6 of the Bank Resolution Law (Official Gazette of the Republic of North Macedonia No. 209/23), the National Bank of the Republic of North Macedonia Council has adopted the following DECISION on the manner of applying the bail-in tool and on the manner of performing write-down and conversion of the relevant capital instruments and eligible liabilities (Official Gazette of the Republic of North Macedonia No. 71/25) GENERAL PROVISIONS

This Decision shall prescribe the actions of the National Bank of the Republic of
North Macedonia (hereinafter: the National Bank) in applying the bail-in tool and in performing the write-down and conversion of the relevant capital instruments and eligible liabilities, in accordance with the Bank Resolution Law (hereinafter: the Law), as follows:

determining the cases when exclusion of a specific liability from the scope of the bailin tool is necessary, under Article 33 paragraph 1 of the Law;
the treatment of shareholders in bail-in or write-down and conversion of relevant
capital instruments under Article 36 paragraph 1 and 4 of the Law;
the manner of determining the value of liabilities arising from financial derivatives;
the manner of determining conversion rates;
the conditions that the eligible liabilities must meet to be subject to write-down or
conversion, as well as the manner of performing the write-down and conversion of the relevant capital instruments and eligible liabilities;
the type of documentation, conditions and procedure for issuing the approval under
Article 44 paragraph 3 item 1) of the Law.

The terms used in this Decision shall denote the following:
2.1 "Direct contagion" shall denote a situation when the contracting parties whose
claims on the bank that is being resolved are written off, realize losses due to which those contracting parties will not be able or will probably not be able to meet their liabilities;
2.2 "Indirect contagion" shall denote a situation where the write-down or conversion
of the liabilities of the bank that is being resolved causes a negative reaction by market participants that leads to a severe disruption of the financial system with potential to harm the real economy;
2.3 "Reduction of the participation of existing shareholders" shall denote the issuance
of new shares or other equity instruments for the holders of the relevant capital instruments or for the creditors of the bank, which reduces the participation of existing shareholders in the initial capital, i.e their rights from the shares shall be accordingly reduced;

2.4 "Simplified reduction of the initial capital" shall denote the simplified reduction of
the core principal from the Trade Company Law;
2.5 "Valuation" shall denote the valuation performed in accordance with the Law and
the National Bank's regulations on the methodology for the manner of conducting the valuation for the purposes of bank resolution; Terms not defined in this Decision shall have the meaning of the terminology defined in the Law and the bylaws adopted on the basis of this law.
3. In order to properly implement the requirements of this Decision, the bank shall be
obliged to establish an appropriate information system that will enable timely provision of the data and information that the National Bank would need to implement the authorizations for write-down or conversion of the appropriate capital instruments and eligible liabilities and /or to apply the bail-in tool. The established information system, as well as its adequacy, should be subject to regular testing and updating by the bank. CASES WHEN THE EXCLUSION OF A SPECIFIC LIABILITY FROM THE SCOPE OF THE BAIL-IN TOOL IS NECESSARY
4. The Executive Board of the National Bank shall decide on the full or partial exclusion
of a specific liability from the scope of the bail-in tool, if any of the conditions set out in Article 33 of the Law are met, taking into account the circumstances of the bank under resolution. The Decision shall be based on the fulfilment of at least one of the resolution objectives set out in Article 17 paragraph 1 of the Law. The National Bank shall first consider the possibility of partially excluding the liability or class of liabilities by limiting the amount of write-down, if applicable.
5. The National Bank may decide to exclude a specific liability from the scope of the
bail-in tool even in cases where such exclusion is not provided in the resolution plan of the bank or the banking group. In the cases under paragraph 1 of this item, when deciding on the exclusion of the liability or class of liabilities which would lead to transferring losses to the Resolution Fund, the National Bank shall be obliged to explain:

the exceptional circumstances that led to the exclusion of the liabilities, which differ
from the circumstances present at the time of the development of the resolution plan;
the reasons why the exceptional circumstances and the need for the exclusion of
liabilities could not be foreseen when the resolution plan was developed; If the need for exclusion was provided for in the resolution plan, the National Bank shall be obliged to explain the manner in which the National Bank took this need into account when determining and/or removing the impediments to resolution. Exclusion of liabilities due to inability to write-down or convert them into shares within a reasonable time, despite the activities undertaken by the National Bank for the timely and efficient application of the bail-in tool

The National Bank may decide to fully or partially exclude a specific liability from
the scope of the bail-in tool in the cases under Article 33 paragraph 1 item 1 of the Law, when the impediments that will arise due to the inclusion of that liability do not allow the bail-in tool to be applied within a reasonable time, despite the activities undertaken by the National Bank. For the purposes of paragraph 1 of this item, the National Bank shall:

in the resolution plan, describe how it will ensure the availability within a reasonable
time of the information necessary for the conduct of the valuation under Articles 21 and 38 of the Law;
within the framework of the resolvability assessment when preparing the resolution
plan, identify the impediments to resolution that could arise in the event of the exclusion of a specific liability or class of liabilities, including the circumstances that could trigger the exclusion of liabilities.

When determining the reasonable period for the purposes of item 6 of this Decision,
the National Bank shall proceed from:

the deadline for determining the amount to be written-down;
the deadline for completing all activities necessary to implement the bail-in tool, in
order to meet the resolution objectives, taking into account the situation at the time of undertaking the resolution activities. For the purposes of paragraph 1 of this item, the National Bank shall take into account:
the need to adopt a decision to initiate resolution proceedings stating the
application of the bail-in tool and determining the amount of eligible liabilities to be written-down or converted into shares, including the need for these eligible liabilities to be allocated to the appropriate creditors or classes of creditors;
the effects of postponing such a decision on market confidence, possible market
reactions and the efficiency of the resolution activities, taking into account the information available to market participants about the situation in the bank and their expectations about the effects of the bank's failure on their operations;
the timing of market opening in terms of the level of impact on the continuity of
critical functions and on direct and indirect contagion;
the deadlines for meeting the required amount of capital, in accordance with the
requirements of the Banking Law;
the maturity date of the bank's liabilities.

If the exclusion of a specific liability in accordance with item 6 of this Decision would
lead to transfer of losses to the Resolution Fund, the explanation from item 5 of this Decision should also contain:

whether, or how, the requirements of items 6 and 7 of this Decision have been
met; and
why the need for exclusion could not be resolved by some of the valuation methods
under Article 21 of the Law.
Exclusion of liabilities for the purpose of continuing to perform critical functions and core business lines

The National Bank may decide to fully or partially exclude a specific liability for the
purposes of the bail-in tool in cases where the exclusion of that liability is necessary for the smooth performance of a critical function, if any of the following elements are met:

the inclusion of the liability in the bail-in tool would put in question the performance
of the critical function in terms of availability of funding sources, dependence on other counterparties (for example counterparties with whom the bank has entered into a hedging instrument for risk management purposes), connection to infrastructure or service providers of the bank, which might not carry out or continue to carry out transactions with the bank after the application of the bail-in tool, and
the critical function is a service that the bank provides to third parties and which
depends on the uninterrupted performance of the obligation.
For the purposes of paragraph 1, indent 1 of this item, the National Bank may exclude specific liabilities from the application of the bail-in tool for risk management purposes (hedging instrument), only if the following conditions are met:
the hedging instrument is recognized as a risk hedging instrument, in accordance
with the Banking Law and the bylaws arising from this law and is significant for the implementation of the critical function, and
it would be impossible for the bank to replace the risk hedging instrument under
reasonable conditions within the period necessary to maintain the critical function. For the purposes of paragraph 1, indent 1 of this item, the National Bank may exclude specific liabilities from the application of the bail-in tool to maintain the availability of funding sources only if the following conditions are met:
the National Bank assesses that the source of financing is significant for maintaining
a critical function, and
it would be impossible for the bank to replace the source of funding within a
reasonable period of time required to maintain the critical function, determined under item 7 of this Decision.

The National Bank cannot exclude liabilities from the application of the bail-in tool
solely because of:

the maturity of the liability;
the expectation of an increase in financing costs, when this does not threaten the
smooth performance of the critical function;
the expectations for future profits.

The National Bank may decide to fully or partially exclude a specific liability for the
purposes of the bail-in tool in cases where the exclusion is necessary for the continuation of the main business line, if the inclusion of the liability may impair the ability of the bank being resolved to continue to perform a certain significant service, activity or transaction for the purpose of achieving the resolution objectives set out in Article 17 paragraph 1 items 1 and 2 of the Law.
If the exclusion of a specific liability under items 9 and 11 of this Decision would
lead to the transfer of losses to the Resolution Fund, the explanation from item 5 of this Decision should also include:

whether or how the requirements of items 6 and 7 of this Decision have been met;
and
why the liabilities that should be excluded are of greater importance to the smooth
performance of the relevant critical function or main business line than liabilities that are not excluded.

Exclusion of liabilities in order to prevent a negative impact on the financial system, in particular with regard to eligible deposits if their write-down or conversion into shares could threaten financial stability in a manner that would also cause a serious disruption to the domestic economy
13. The National Bank shall decide to fully or partially exclude a specific liability for the
purposes of the bail-in tool in the cases under Article 33 paragraph 1 item 3 of the Law, when it assesses that the inclusion of the liability may cause direct or indirect contagion, determined under items 14 and 15 of this Decision.
14. When assessing the existence of direct contagion from the bank's relationship with
its counterparties, the following shall be taken into account:

the effect that the inclusion of liabilities to relevant counterparties in the bail-in tool
may have on their operations;
the systemic importance of the relevant counterparties, in particular for other
market participants and financial market infrastructure participants.

When assessing the existence of indirect contagion, the following indicators shall
be taken into account:

the number, size and interconnectedness of banks with similar characteristics to
the bank being resolved in terms of the possibility of a significant confidence reduction in the banking sector or financial system;
the number of individuals directly and indirectly affected by the application of the
bail-in tool, taking into account the public awareness of the resolution activities, from the perspective of the risk of a significant reduction in the overall confidence in the banking or financial system;
the number, size, and interconnectedness of counterparties affected by the
application of the bail-in tool, including market participants from the non-banking sector and the importance of the critical functions performed by these counterparties;
the possibility of the contracting parties to have access to alternative service
providers for the functions assessed as substitutable;
the possibility that a significant number of counterparties will withdraw funding or
cease the transactions with other banks following the application of the bail-in tool or the possibility that markets will cease to function normally as a result of the application of the bail-in tool, in particular in the event of a loss of market confidence or the emergence of panic;
significant loss of sources of short-term financing or reduction in the volume of
deposits;
the number, size or significance of banks at risk of meeting the requirements for
early intervention, in accordance with the Banking Law or whose situation indicates that they cannot or are unlikely to be able to continue operating in accordance with the Law;
the risk of interruption in the performance of critical functions or a significant
increase in the prices of such functions, as a result of the changes in market conditions or the availability of such functions or an increase in the expectations of counterparties and other market participants;
a significant decline in the prices of banks' shares or a decline in the prices of assets
held by banks, especially when they may have an impact on the banks’ solvency;
the significant reduction in funding available to banks, in the short and medium
term;
the significant disruption of the functioning of the interbank money market, which
is evident from the significant increase in margin requirements or reduction in access to collateral that banks can use for the needs of this market;
the significant increase in the prices of credit risk mitigation instruments or
deterioration of the credit rating of banks or other market participants whose operations are significant for the financial condition of banks.

If the exclusion of a specific liability under item 13 of this Decision would lead to
transfer of losses to the Resolution Fund, the explanation from item 5 of this Decision should also contain:

whether or how the requirements of items 6 and 7 of this Decision have been met;
and
the reasons why it is assessed that the excluded liabilities are more likely to cause
contagion under item 13 of this Decision than the liabilities that are not excluded. Exclusion of liabilities because the application of the bail-in tool with respect to such liabilities would cause greater losses for other creditors

The National Bank may decide to exclude in whole or in part a specific liability
from the scope of the bail-in tool in cases under Article 33 paragraph 1 item 4 of the Law, when it assesses that with the exclusion, the holders of liabilities that are not excluded would be in a better situation than they would have been if the specific liability would have been included in the application of the bail-in tool. For the purposes of paragraph 1 of this item, the National Bank shall determine and compare the effect on all creditors of the inclusion and exclusion of the relevant liabilities from the application of the bail-in tool, under Article 21 of the Law.
If the exclusion of a specific liability under item 17 of this Decision means transfer
of losses to the Resolution Fund, the explanation from item 5 of this Decision should also contain an explanation of whether, or how the requirements referred to in items 6 and 7 of this Decision are fulfilled. TREATMENT OF SHAREHOLDERS IN BAIL-IN OR WRITE-DOWN AND CONVERSION OF RELEVANT CAPITAL INSTRUMENTS
If, based on the valuation under Article 21, paragraph 4, items 2 to 6 of the Law,
the net value of the bank is equal to zero or is negative and if the valuation under Article 21 paragraph 10 of the Law shows that the shareholders of the bank would not be paid in the event of the opening of bankruptcy proceedings of the bank, the National Bank shall implement a simplified reduction of the initial capital in full, a withdrawal of all shares or other equity instruments or their full transfer to the creditors whose claims were included in the bail-in tool.
If, based on the valuation under Article 21, paragraph 4 items 2) to 6) of the Law,
the net value of the bank is positive, but if the valuation under Article 21 paragraph 10 of the Law shows that the shareholders of the bank would not be paid in the event of the opening of bankruptcy proceedings of the bank, the National Bank may implement simplified reduction of the initial capital in full or partially, withdrawal of all or part of the shares or all or part of the other equity instruments or their full or partial transfer to the creditors whose claims were included in the bail-in tool.
If, based on the valuation under under Article 21, paragraph 4 items 2 to 6 of the
Law, the net value of the bank is positive and if the valuation under Article 21 paragraph 10 of the Law shows that the shareholders of the bank would be paid in the event of the opening of bankruptcy proceedings of the bank, the National Bank shall implement a partially simplified reduction of the initial capital, a withdrawal of part of the shares or other equity instruments or their partial transfer to the creditors whose claims were included in the bail-in tool, whereby shareholders retain part of the shares or other equity instruments.
In the cases under items 20 and 21 of this Decision, when a partially simplified
reduction of the initial capital, partial withdrawal of shares or other equity instruments or their partial transfer to creditors whose claims were included in the bail-in tool is implemented, the National Bank shall also reduce the participation of existing shareholders. As an exception to paragraph 1 of this item, in the cases under items 20 and 21 of this Decision, the National Bank may only reduce the participation of existing shareholders, without implementing a simplified reduction of the initial capital, withdrawal of shares or other equity instruments or their transfer to creditors whose claims were included in the bail-in tool.
When selecting the activities towards the bank's shareholders under items 19, 20,
21 and 22 of this Decision, the National Bank shall select the activities or combination of activities that best achieve the resolution objectives prescribed by the Law, taking into account the characteristics of the shares and other equity instruments and the circumstances of the case. MANNER OF DETERMINING THE VALUE OF LIABILITIES ARISING FROM FINANCIAL DERIVATIVES
The value of liabilities arising from financial derivatives shall be determined based
on the following methods and principles:

the methods for determining the value of individual classes of derivatives, including
financial derivatives that are subject to netting arrangements;
the principles for determining the date on which the value of the liability arising
from the derivative should be determined;
the methods for comparing the reduced value of the financial derivative due to its
closure under Article 38 paragraph 1 of the Law, with the amount of losses that would be incurred by the contracting parties from the financial derivatives contracts when implementing the bail-in tool. The comparison from paragraph 1, indent 3 of this item shall be made before the National Bank prematurely closes the financial derivative contract under Article 38 paragraph 1 of the Law, as part of the valuation carried out under Article 21 of the Law, taking into account the provisions of items 25 and 26 of this Decision.

The reduced value of the financial derivative due to its closure under Article 38
paragraph 1 of the Law shall be determined as a sum of:

the cost to the other contracting party that would arise from providing re-hedging,
taking into account the spreads between the bid and ask prices, the average price and the ask price or the average price and the bid price;
the cost to the bank under resolution that would arise from re-establishing
protection for the exposure that is not covered or from maintaining an acceptable risk profile in accordance with the bank's resolution strategy;
any reduction in the value of the franchise resulting from the closing of the financial
derivative contract, including any damage to the subject matter of the financial derivative or to another asset related to the financial derivative being closed, as well as any impact on financing costs or the amount of income; and
the expense in the form of an impairment loss or other type of reserves to cover
losses from the closing of the financial derivative contract (errors and disputes regarding the transaction, substitution of the subject matter of collateral, etc.).

The amount of losses, which would have been incurred by the contracting parties
from the financial derivatives contracts when implementing the bail-in tool shall be determined as a product of:

the share of liabilities arising from financial derivative contracts, determined by the
valuation under Article 21 of the Law, which are not excluded from the scope of the bail-in tool under Article 32 paragraph 2 of the Law, in the amount of liabilities with the same level of priority; and
the total amount of losses that would be incurred by all liabilities that have the
same level of priority as the financial derivatives, including liabilities from financial derivatives that are subject to closure.

Before implementation of the power to write-down or convert liabilities arising from
the financial derivatives contracts under Article 48 paragraph 2 item 13 of the Law, the National Bank shall inform the contracting parties about the premature closure of the financial derivatives contracts. In the notification from paragraph 1 of this item, the National Bank shall specify the date of the premature closure of the financial derivative contract. MANNER OF DETERMINING THE CONVERSION RATES
When determining the conversion rates of the relevant capital instruments and
eligible liabilities under Article 39 of the Law, the National Bank shall proceed from the achievement of the resolution objectives under Article 17 of the Law, compliance with the resolution principles under Article 18 of the Law and respecting the right of ownership, while following the following rules:

the fulfillment of the principle of Article 18 paragraph 1 item 8 of the Law, and
the fulfillment of the principles of Article 18 paragraph 1 items 1, 2 and 7 of the
Law.

The principle of Article 18 paragraph 1 item 8 of the Law shall be deemed to be
met when the conversion rate, regardless of whether one or different conversion rates are determined, is determined in a manner that allows the estimated value of the relevant capital instruments, eligible liabilities and bail-inable liabilities after the implementation of the writedown or conversion or after the application of the bail-in tool, set under Article 21 paragraph 4 items 2 to 6 of the Law, to be greater than or equal to their estimated value if bankruptcy proceedings had been opened against the bank, determined in accordance with the valuation under Article 21 paragraph 10 of the Law.
The National Bank may apply different conversion rates for different categories of
capital instruments and liabilities, if necessary to meet the requirements of items 28 and 29 of this Decision.

In the cases under paragraph 1 of this item, the National Bank shall determine the different categories of capital instruments and liabilities in accordance with the level of priority specified in the Banking Law. CONDITIONS THAT ELIGIBLE LIABILITIES MUST MEET TO BE SUBJECT TO WRITE-DOWN OR CONVERSION AND THE MANNER OF PERFORMING THE WRITE-DOWN AND CONVERSION OF THE RELEVANT CAPITAL INSTRUMENTS AND ELIGIBLE LIABILITIES
31. Liabilities that may be written down or converted into shares or other equity
instruments shall be considered eligible liabilities that meet the conditions for acceptable eligible liabilities prescribed by the National Bank's regulation on the manner of determining the minimum requirement for own funds and eligible liabilities.
32. When implementing the write-down and conversion of the relevant capital
instruments and eligible liabilities, the National Bank shall ensure:

equal treatment of holders of capital instruments belonging to the same category
of capital instruments, taking into account the order prescribed in Articles 37 and 44 of the Law, regardless of their other characteristics or contractual provisions, including contractual provisions for the write-down or conversion of the capital instrument upon the occurrence of a critical event, and
equal treatment of the holders of capital instruments that are part of the bank's
own funds in accordance with the Banking Law, regardless of whether they are included in full or in part in the bank's own funds. If the critical event stipulated in the capital instrument agreement occurs before the National Bank exercises the authority to write down and convert the relevant capital instruments or to apply the bail-in tool, the sequence prescribed in Articles 37 and 44 of the Law should take into account the effect of the write down or conversion implemented as a result of the occurrence of the critical event. TYPE OF DOCUMENTATION, CONDITIONS AND PROCEDURE FOR ISSUING PRIOR CONSENT FROM THE NATIONAL BANK FOR THE CONVERSION OF THE APPROPRIATE CAPITAL INSTRUMENTS AND ELIGIBLE LIABILITIES INTO INSTRUMENTS OF THE COMMON EQUITY TIER 1 CAPITAL

The Executive Board of the National Bank shall issue the prior approval under Article
44, paragraph 3 item 1 of the Law, if the instruments issued by the bank or its parent entity meet the conditions for inclusion in the Common Equity Tier 1 capital prescribed in the National Bank's regulation on the methodology for determining capital adequacy. The approval under paragraph 1 of this item shall be issued together with the approval issued by the National Bank as the competent supervisory authority, in accordance with the National Bank's regulation on the methodology for determining capital adequacy, based on the documentation, conditions and procedure prescribed by that regulation. TRANSITIONAL AND CLOSING PROVISIONS
This Decision shall enter into force on the eighth day from the day of its publication
in the Official Gazette of the Republic of North Macedonia, and shall apply from 13 October 2025.

D. No. 02-10864/7 Governor and Chairman
27 March 2025 of the Council of the National Bank Skopje of the Republic of North Macedonia Anita Angelovska-Bezhoska