On September 15, 2015, the Verkhovna Rada of Ukraine Committee on Financial Policy and Banking approved a decision to recommend that the   Verkhovna Rada of Ukraine adopt as a basis draft law registered as No. 2286а On Amendments to Certain Legal Acts of Ukraine on restoring confidence between borrowers and creditors.

The National Bank of Ukraine upholds this draft law as its adoption will make it possible to tackle most problems related to non-performing loans and corporate insolvency that Ukraine has committed to resolve in accordance with paragraph 17 of the Memorandum on Economic and Financial Policy entered into on July 21, 2015, in the framework of the IMF arrangement under the Extended Fund Facility.

“The draft law primarily aims to set fair rules governing relations between a bank and a client, when the legal relations between them are based on full awareness of the  need to assume responsibility for their actions,”said First Deputy Governor of the National Bank of Ukraine Oleksandr Pysaruk. 

As the banking system reform moves to the next stage of resetting, the stage of qualitative changes, there is an urgent need to resume and boost long-term lending to the real economy and bring down borrowing costs.  This can be achieved through putting in place efficient arrangements  to encourage an inflow of funds   into Ukraine’s banking system, with the efforts to mitigate the risk exposure of banking institutions at all stages of the lending process (loan disbursement, loan servicing and repayment) playing a crucial role in this process.

In spite of the ample liquidity of the banking system, banks primarily opt for channelling funds into short-term consumer lending operations, as well as the risk-free instruments offered by the regulator.  Heightened risks of insolvency of potential borrowers, a large portion of legacy loans in banks’ loan book, as well as the problems  faced by creditors claiming the foreclosure of debtor's pledged property  in bankruptcy and execution proceedings are the key factors hampering lending.

 Oleksandr Pysaruk underlined that the share of past-due loans keeps growing. This made banking institutions scale down extensive lending programs and conduct business only with credible clients. Some banks are limited to performing only servicing operations for clients, notably, the execution of funds transfers Ukraine lacks efficient instruments to resolve non-performing loans  owed by mala fide clients, which creates heightened risks for banks.   This negatively affects depositors, and banks’ other creditors, as well as bona fide borrowers that have to pay high borrowing costs.  Draft law No. 2286а has been tailored to tackle these problems.

According to him, the dissolution of loan loss provisions will bring up to UAH 20 billion in income tax revenues to the State Budget of Ukraine.  This will also bring down borrowing costs, thus making loans accessible to businesses and households. In addition, stronger protection of bank investments into the economy will make Ukraine's investment climate more attractive to investors, thus attracting additional funds that are needed for the country’s development.

The Draft Law is intended to put in place the following measures:

• to give equal rights to secured and unsecured creditors in bankruptcy proceedings;
• to simplify the foreclosure of mortgage liens in the event of unauthorized refitting and redesigning by the mortgagor;
• to provide  a secured creditor in bankruptcy proceedings and a mortgage holder with the right to purchase the property not sold at the auction at  a lower price;
• to prevent the alienation of  a vehicle without the consent of the pledgee;
• provide banks with the right to access information stored in state registers  to assess the solvency of potential borrowers.

The Draft Law will entail amendments to the Civil Code of Ukraine, the Laws of Ukraine On Banks and Banking, On Payment Systems and Funds Transfers in Ukraine, On Restoring Debtor’s Solvency or Recognizing the Debtor Bankrupt, On Collateral, On Mortgage, On Road Traffic, On Notaries, On Execution Proceedings, On State Registration of Property Rights to Immovable Property and Their Encumbrances, On Securing Creditors’ Claims and Registration of Encumbrances, On State Registration  of Legal Entities and Sole Proprietors, and On State Registration of Civil Status Acts.