АЛЕРТ: НБУ спрощує процедуру транскордонного фінансування

Ukrainian banking regulation on cross-border transactions has been radically liberalized with the new Law of Ukraine “On Currency and Currency Operations” taking force on February 7, 2019. The National Bank of Ukraine issued a suite of updated regulations governing specific transactions, including the ones governing cross-border loans.

New rules for arrangements between Ukrainian borrowers and foreign lenders The National Bank of Ukraine (NBU) has overhauled the system of registration of loan (credit) agreements with foreign companies (locally known as “non-residents”). From now on, the “registration system” of loan agreements has been replaced with a “notification system”.

Before February 7, the content and terms of loan agreements with foreign lenders have been strictly regulated, and the Ukrainian banks have been prevented from accepting the money on their Ukrainian client’s accounts until the agreements were reviewed and individually approved by a regional branch of the NBU.

The new rules abolish the requirement for prior approval by the NBU and introduce instead a much easier procedure of registration of the basic data of the loan agreements by the borrower’s bank. Registration takes place in the automated information system “Loan agreements with non-residents” (AIS) which is administrated by the NBU.

Review of all documents relating to a cross-border financing transaction is now done by the borrower’s bank in Ukraine. This bank is responsible for the completeness and reliability of such data. Based on the results of the verification of documents, the bank enters information about the agreement to the AIS, and this “registration” allows the bank to accept and transfer the money under the loan agreement. The bank must inform its client and provide an excerpt from the AIS confirming the registration no later than one business day after entering the information into the AIS.

The borrower’s bank has now to comply with the new rules for analyzing and verifying the documents relating to the loan agreement. The banks, in particular, must check whether the transaction may be classified as a “dubious transaction“. The NBU has defined dubious transactions as those whose nature or consequences give grounds to believe that it may be related to the avoidance and / or non-fulfillment of requirements and restrictions established by law.

The NBU has established specific indicators that determine what constitutes “dubious” in this context.

In particular, such indicators include:

  1. The volume of the transactions under loan agreement does not coincide with the volumes of ordinary business activity of the borrower and / or lender.
  2. The type of product / work / service / asset is not typical of the ordinary activities of the borrower and / or lender.
  3. Incompatibility of the essence of the transactions of the content of the borrower’s and / or lender’s activity.
  4. Inconsistency between the cost of the loan agreement and market conditions.
  5. Payment of penalties (including payment by court decision or a settlement agreement, damages, etc.).
  6. One of the participants of the loan agreement is registered or located in states (territories) included in the established list of risky states (for example, list of offshore jurisdictions as defined by the Cabinet of Ministers of Ukraine).

The list of indicators approved by the NBU is not exhaustive and may include other indicators and measures at the discretion of the bank.

In turn, the presence of at least of one of the indicators is the basis for conducting an additional review of documents relating to relevant currency transactions by the bank. During such additional review the bank has the right to request additional documents from the parties of the currency transactions.

In particular, the additional review may include the following:

  • establishment of the substance and purpose of the currency transaction;
  • establishment of conformity / inconsistency of the substance of the currency transaction with the operations of its parties;
  • establishment / absence of economic feasibility of the currency transactions;
  • establishment of sources of origin of funds of the lender.

The maximum interest rate concept has been abolished

One of the most important changes in the regulation of cross-border financing is that the maximum interest rate under loan agreements has been abolished.

Before amendments entered into force, the maximum interest rate was 11 % per annum. This rate took into account commissions, penalties, default interests, indemnity payments and any and all other payments under the agreement, regardless of their nature.

Now, the parties are free to agree on the interest rates and the size of other payments under a loan agreement, having due regard, however, to the indicators 4 and 5 above.

Other important changes

In addition, the new currency regulations provide for:

  • the deadline for payments under export-import contracts has increased from 180 to 365 days;
  • currency control over export-import operations less than UAH 150 000 (about EUR 5 000) is abolished;
  • online purchase of foreign currency by individuals is allowed;
  • Ukrainian entities are permitted to have accounts in foreign banks;
  • international companies are permitted to open accounts at Ukrainian banks and use them to transfer money from foreign counties for investments and other transactions;
  • the registration procedure for cross-border borrowings is abolished.

According to the NBU, such changes are intended to improve the investment attractiveness of Ukraine.

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