The briefing given by the top management of the National Bank of Ukraine, which was held at the National Bank on January 20, 2015, was focused on the legislative initiatives put forward by the National Bank of Ukraine.

During the meeting, First Deputy Governor of the National Bank of Ukraine Oleksandr Pysaruk briefed the journalists on an array of legislative initiatives devised by the National Bank of Ukraine.

"Considerable progress has been made with regard to streamlining the legal framework for the central bank's monetary policy, regulating the foreign exchange market, and banking supervision policy, purging the banking system and strengthening the banking system stability. However, there is still a great deal of issues that need to be promptly addressed," said Oleksandr Pysaruk, pointing out the focal areas of legislative efforts of the National Bank.

According to the First Deputy Governor of the National Bank of Ukraine, these legislative initiatives include draft laws intended to address the pressing issues facing the banking industry, in particular, the protection of creditors' rights, the regulation of the non-banking market  of currency exchange operations, a streamlining of the rules governing takeovers and mergers of banks,  higher efficiency of banking supervision and greater responsibility of bank owners for the financial performance of their financial institutions, the handling of non-performing debt by banks, the strengthening of the institutional capacity and  the autonomy framework of the National Bank of Ukraine.

Oleksandr Pysaruk emphasized that the streamlining of the internal rules of procedure of the National Bank,   the strengthening of the institutional capacity and granting actual independence to the regulator pave the way for the central bank to perform its main function and fulfill the tasks assigned to the regulator by law in an efficient way. The relevant draft law intended to strengthen the autonomy framework and institutional capacity of the regulator is currently being devised by the National Bank of Ukraine in cooperation with international cooperation

Director of the NBU Legal Department Viktor Novikov who also attended the briefing said that the aforementioned draft law provides for a stronger role of the National Bank of Ukraine Council in carrying out internal audit and exercising control over risks.

"The provision of the law, under which all members of the Council and the Board could be dismissed at a time, making the central bank virtually unable to fulfill its mandate, will be repealed. At the same time, the number of Council members will be cut to 9, whereas that of Board members will be reduced to 6. The meetings of the National Bank Council will be held not less than 10 times a year.

The relevant draft law also provides for the possibility to devolve certain powers of the National Bank of Ukraine Board to special or ad hoc committees. "This is in line with the international practice, making it possible for the central bank to adopt decisions in different areas in a more prompt manner," emphasized Oleksandr Pysaruk.

The representatives of the regulator dwelled on the issues of establishing a legal framework for enhancing the protection of creditors' rights and improving the investment climate in Ukraine.

This issue has long been one of the most painful for banks and the NBU," noted Director of the NBU Legal Department Viktor Novikov, adding that failure by borrowers to meet the terms and conditions of contracts is one of the key reasons behind the worsening of the financial standing of banks and bankruptcy of individual financial institutions.

Director of the NBU Methodology Department Nataliia Ivanenko emphasized: "Until the rights of investors and creditors remain unprotected, the investment attractiveness of the Ukrainian banking sector remains out of the question! The adoption of the draft law lays the legal basis for ensuring the protection of creditors' legal rights".

To this end, amendments will be made to some regulations, specifically, the following Laws of Ukraine: On Bankruptcy, On Mortgage, On Notaries and Enforcement Proceedings. The Civil Code, Tax Code and Family Code will also be amended.  

Oleksandr Pysaruk also said that the National Bank had devised a draft law allowing the regulator to take a hard line on the owners and management of banks that shall be fully responsible for activities of their banks.

"The first thing that we plan to do is to impose tougher restrictions on insider lending practices of banks. These transactions, especially if carried out on a large scale, undermine the banking sector stability. Secondly, we intend to reinforce bank owners and managers' responsibility for carrying out transactions with related parties, misreporting and action or omission that ultimately have led to the bank going bankrupt. The relevant amendments are currently being developed," emphasized the First Deputy Governor of the National Bank of Ukraine.

During the briefing, journalists repeatedly raised issues regarding the handling of troubled assets by banks, in particular, mortgage loans. The Director of the NBU Legal Department said that the National Bank had developed two draft laws intended to address tax-related issues facing banks when handling non-performing loans.

"We suggest that the insurance compensation amount due to banks in the event of non-repayment of loans granted by banks be exempt from taxation. Another suggestion is that banks' operations related to foreclosure of property pledged as collateral against non-performing loans be exempt from VAT taxation. We should draw a distinctive line between the notion of a "write-off" of debt and that of "debt cancellation”. Then banks will freely be able to enter into foreclosure agreements for nonperforming loans," said Viktor Novikov, adding that without addressing these issues, the process of purging the banking system of toxic assets would be stalled.

In the course of this meeting, First Deputy Governor of the National Bank of Ukraine Oleksandr Pysaruk also said that the National Bank adopted a decision to exclude non-bank financial institutions from the list of institutions authorized to conduct currency exchange transactions. To this end, the National Bank of Ukraine had developed amendments to Decree of the Cabinet of Ministers On Foreign Exchange Regulation and Control. 

"The centralization of these operations exclusively within banks will make it possible to streamline the conduct of these operations in the cash segment of the Ukrainian foreign exchange market and ensure the security and transparency of these transactions," emphasized the Deputy Governor of the National Bank, adding that the closure of currency exchange offices will not cause any inconvenience to the public since 99% of currency exchange operations are executed by banks.