The National Bank of Ukraine strongly urges Draft Law No. 1558-1 On restructuring liabilities on foreign exchange loans be repealed.

During the meetings of the Verkhovna Rada of Ukraine Committee on Financial Policy and Banking, the regulator has repeatedly articulated its stance on the inadmissibility of passing the bill imposing mandatory conversion of consumer loans in foreign currency into hryvnia.

The prohibition of interference by the state and the National Bank of Ukraine in bilateral negotiations between borrowers and banks over restructuring of consumer loans in foreign currency is enshrined in the Memorandum on Economic and Financial Policies entered into within the framework of cooperation with the International Monetary Fund.  The Memorandum reads: “The state and the NBU should not interfere in bilateral negotiations between borrowers and banks while ensuring fair process. In this regard, should a law imposing mandatory conversion of foreign currency mortgages into hryvnia be passed, the president will veto its enactment,” reads the Memorandum”.

Adoption of Bill No.1558-1 will have a devastating impact on the financial and banking system, for this draft law is intended to force banks to convert consumer loans in foreign currency into hryvnia at the exchange rate effective at the date of entering into the loan agreement (approximately UAH 5.05/USD 1).  Not only the stability of the banking system, but also the welfare of all citizens will be placed in jeopardy.

If all the foreign-currency denominated loans granted to resident individuals were converted into hryvnia at the exchange rate of UAH 5.05/USD 1, the banking system would incur losses amounting to about UAH 100 billion. 

The implementation of the aforementioned provisions would undermine the ability of the banking system to comply with regulatory capital ratios, necessitating an immediate capitalization of the banking system, including with the involvement of the state through refinancing, which would increase the burden on the state budget.   Such legislative changes would lead to lead to mass bank insolvencies and increase spending of the Deposit Guarantee Fund.

In addition, the measures set out in the draft law substantially tip the balance of contractual rights of creditors and borrowers arising from the loan agreement in favour of consumers, thus placing the entire burden of losses solely on the banking system. This not only contradicts the principles of justice and voluntary settlement of contractual relations set out in the Civil Code of Ukraine, but also creates grounds for violation of the rights of other bank customers – depositors.

According to applicable laws, the restructuring of debt under loan agreements (the repayment of a loan at a special exchange rate or an extension of the loan agreement), the introduction of amendments to loan agreements with regard to the repayment profile of a loan, payment of fines and penalties are settled based on the loan agreement entered into between the creditor and the debtor.

Pursuant to part 12 of Article 11 of the Law of Ukraine On the Protection of Consumers’ Rights, a creditor shall have the right to restructure debt under the consumer loan agreement subject to the customer's consent.

Please note that Articles 5 and 47 of the Law of Ukraine On Banks and Banking determine the economic autonomy and independence of banks in pursuing the credit policy, which they should implement while maintaining a breakeven operation and taking into account of risks arising from the non-repayment of loans.  Banks raise and place funds under their own terms and at their own risk. They independently set the interest rates and commission fees. 

The National Bank of Ukraine believes that the aforementioned issue should be settled on a voluntary and contractual basis.