The National Bank of Ukraine (NBU) welcomes the parliament’s adoption of the Law On Amendments to Certain Laws of Ukraine On Improvement of the Procedure for Financial Restructuring. The Law enables banks to continue using the mechanism of voluntary financial restructuring for another three years in order to decrease the amount of bad debt. A total of 300 lawmakers voted in favor of this law.
The next important task in financial restructuring, from the NBU’s perspective, would be to launch a fully fledged secondary market for bad debt and to develop respective infrastructure. “We need both to resolve the issues of bad debt and to think for the future. With active lending, new NPLs will inevitably emerge. This is precisely why it is necessary to ensure civilized conditions and instruments for efficient work with NPLs to prevent NPLs from accumulating on banks’ balances. This task can also be resolved by adopting the Draft Law On Debt Management Activities, which has been drafted jointly with the EBRD. The law will regulate how companies manage bad debt, while the implementation of the Law On Bankruptcy and Protection of Creditor Rights will ensure adequate conditions for the treatment of NPLs,” commented Kateryna Rozhkova, NBU First Deputy Governor.
It should be noted that in 2016, the Parliament adopted the Law On Financial Restructuring, which contributed to the creation of a mechanism for the voluntary out-of-court restructuring of the bad debt of corporate debtors. The aim of the law mentioned above was to ensure the conditions for decreasing the amount of bad debt on banks’ balances. It was also intended to decrease the bankruptcy risk and the risk of termination of the economic activity of enterprises that were temporarily facing liquidity problems but that were able to restore their economic activity.
Overall during three years, banks have restructured over UAH 30 billion worth of debt under the procedure for financial restructuring provided for by this law. Most agreements are concluded with state-owned banks. Data show that this Law is useful for the recovery of the banking sector. However, the law expires this year.
The draft law the Parliament has supported today extends the Law On Financial Restructuring by another three years, and also provides for the clarification of legislation in order to optimize the respective procedures conducted by banks. In particular the draft law stipulates:
- possibility of conducting a common restructuring procedure for several debtors that are related parties but have different creditors
- clarification of conditions for assignment of claim in the procedure for financial restructuring
- clarification of the concentration ratio requirement, which should ease the restructuring procedure in terms of approval by the Antimonopoly Committee of Ukraine
- clarification of the requirement for determining the date of repayment of creditor losses, which provides for the satisfaction of claims at the expense of a mortgage.
The NBU expects that banks will continue to use the financial restructuring mechanism to effectively clear their balance sheets.