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NBU Continues to Take Action to Increase FX Cash Supply, Support Foreign Debt Recovery by Businesses, and Preserve International Reserves

NBU Continues to Take Action to Increase FX Cash Supply, Support Foreign Debt Recovery by Businesses, and Preserve International Reserves

The National Bank of Ukraine is updating and revising FX restrictions necessary for maintaining macroeconomic stability of Ukraine. A number of changes will come into force effective 6 September 2022. They concern the following.

The cash segment of the FX market 

NBU is fostering an increase in supply of FX cash: a bank will be allowed to sell to households the amount of FX cash equal to the total amount of cashless foreign currency the bank has purchased from households since 13 April 2022, compared to a half of it allowed to be sold previously.  

The NBU estimates an increase in FX cash supply will help stabilize the FX cash market and will not have a significant impact on the international reserves of Ukraine.   

Restructuring of bank clients’ foreign debts

The temporary norms introduced by the NBU do not allow transferring foreign currency abroad to repay and service debts of Ukrainian businesses toward nonresidents. This norm is necessary to support Ukraine’s international reserves, as making the payments in full would require large amounts of FX resources, which are scarce during the war. 

At the same time, taking into account businesses’ urgent need to settle their foreign debts, the NBU told the banks they should now recommend their clients to propose their nonresident lenders to restructure the debts on the terms that are not worse than the restructuring terms for the foreign debt of the government of Ukraine.

In order to create favorable conditions for Ukrainian borrowers and foreign lenders to reach agreement, the NBU allowed transferring foreign currency to pay interest on such loans provided that all of the following conditions are met:

  • The date of interest payment is between 24 February and 10 August 2022 (inclusive).
  • The borrower had no past due debt under the loan agreement as of 24 February 2022.
  • The total amount to be transferred under one loan agreement within one calendar month must not exceed one fifth of the amount of interest payable during the period from 24 February to 10 August 2022 (inclusive).
  • The funds to be used to purchase foreign currency and transfer currency valuables in order to make the interest payments must not be borrowed from nonresidents. 
  • The borrower has no debts on tax payments. 
  • The borrower’s business continued to operate after 23 February 2022, in particular the borrower paid wages and made other mandatory payments. 

The NBU expects this decision to improve the business climate, which is important for the economic recovery of Ukraine, and to have a controlled impact on international reserves.

According to the central bank’s estimates, total interest due to nonresidents (under loans not guaranteed by the state) from 24 February to 10 August 2022 does not exceed USD 550 million. The approved payment procedure will not put excessive pressure on international reserves. 

Moreover, in order to balance out demand on the FX market that is fueled by payments on interest debt, the NBU is revising its requirements for FX purchases by businesses. 

Businesses’ purchases of foreign currency to make FX settlements 

The NBU ruled that, in order to make FX settlements, a company must first use foreign currency it has at its disposal. After using its own FX funds, the company can buy foreign currency from the FX market of Ukraine. 

As of 2 September 2022, corporate clients held USD 8.7 billion on their foreign-currency bank accounts (excluding budget and nonbudget funds). Therefore, the norm will reduce demand for foreign currency and help preserve Ukraine’s international reserves, which are important for the country’s defense and stable functioning of the economy and the financial system. 

Currency supervision by banks 

The NBU ruled that the banks must not stop currency supervision over how Ukrainian businesses comply with deadlines for settlements on goods import or export transactions when documents on netting the liabilities are provided. This will improve transparency of cash flows on export and import transactions.

The relevant amendments and a number of other clarifying amendments were approved by NBU Board Resolution No. 197 On Amendments to NBU Board Resolution No. 18 dated 24 February 2022 dated 2 September 2022, which comes into effect on 6 September 2022.

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