The National Bank of Ukraine (NBU) encourages banks to respond in a timely manner to economic problems caused by the COVID-19 pandemic. To this end, the regulator has circulated a letter to banks with a set of recommendations for dealing with borrowers (introduction of terms of "credit vacations"), as well as provisionally introduced special rules for applying the requirements of Regulation No. 351 On Determining by Ukrainian Banks of the Size of Credit Risk of Their Exposures.
According to the rules approved, the loans that have been serviced as of 1 March 2020 and restructured before the end of September 2020 shall not be considered as those attributed with certain signs of default.
The key principles and recommendations for the loans restructuring:
- Subject to restructuring are only the loans to borrowers who have experienced financial difficulties due to pandemic-related restrictive measures and are unable to service loans on time. The terms and timing of the restructuring shall be determined by a bank taking into account the borrower's economic needs. The restructuring should, on the one hand, mitigate the impact of the crisis on the financial condition of borrowers and, on the other, not create risks of capital loss by banks.
- The loans restructuring could be initiated both by banks and their clients. Corporate clients should provide banks with factual evidences of significant temporary decline in income or termination of their work.
- Banks are advised to inform clients about the possibility of loan restructuring in any convenient way. The message should indicate which loans can be restructured and on what terms.
- To conduct the restructuring, the physical presence of clients in the bank branch is not required. The bank independently determines the procedure for submitting /processing documents for restructuring, with a preference given to using remote communication channels.
- The banks should work effectively with solvent borrowers, ensure timely receipt of all scheduled payments in accordance with the schedule to avoid the risk of liquidity decline, credit risk increase and capital downturn.
- The restructuring of loans to medium and large businesses should be considered on a case-by-case basis, taking into account the latest financial statements, current financial situation, vulnerability of sectors and enterprises to the current economic crisis and prospects for their recovery.
- The use of the restructuring approaches set out in Regulation No. 97 (Regulation On Treatement of Nonperforming Exposures at Ukrainian Banks) is recommended. At the same time, according to the NBU, the typical approaches are as follows:
- Exempting clients from repayment of the principal loan as envisaged in the schedule, for the period not less than the period of quarantine / other restrictions due to the pandemic. Accordingly, the loan repayment period may be extended.
- In difficult circumstances, clients may be offered capitalization of interest payments. This will allow the business to remain liquid while maintaining the necessary level of current consumption for private individuals.
- Given the expected medium-term economic impact of the restrictive measures, we suggest that restructurings shall be based on the assumption that the recovery of the solvency of customers who are in financial distress will occur no earlier than Q3 2020.
- The banks should not exacerbate the terms of the loan as a result of restructuring. The restructuring should not lead to an increase in the effective interest rate. The banks should not require from the clients any explicit or hidden fees for restructuring due to circumstances of a pandemic.
- The banks are allowed not to impair the assessment of the borrowers' financial position based on the information from credit bureaus concerning the performance of contractual obligations by individuals in the period of quarantine.
The possibility of credit restructuring is envisaged pursuant to NBU Board Resolution No. 39 On peculiarities of application of the requirements of the Regulation On Determining by Ukrainian Banks of the Size of Credit Risk of Their Exposures in connection with the introduction of restrictive measures which comes into force from the day following its official publication.