On 22 November 2016, the National Bank of Ukraine (the “NBU”) issued a set of regulations amending certain existing rules of currency control and the investment regime in Ukraine. The regulations are part of the on-going liberalisation of capital controls by the NBU which ultimately are aimed at improving the business environment in Ukraine. In particular, Ukrainian banks shall now have access to hedging through investment in foreign currency derivatives on stock exchanges and by carrying out their own derivative transactions. This is expected to provide support to banks in managing their credit risks and thus ensuring their stability. For Ukrainian borrowers, the new NBU regulations will simplify access to foreign credit funds. Also, there is further liberalisation with regards to the repatriation of foreign investments. Finally, Ukrainian importers will benefit due to the changes introduced to the procedure to purchase foreign currency.

Liberalisation for Cross-border Loans Involving Participation of Export-credit Agencies

Regulation No. 404 introduced one new exemption from the general control regime with regards to compliance with the NBU’s maximum interest rate cap payable under cross-border loan agreements (the “Cap”). As a general rule, the Cap covers the interest, all commissions, penalties (e.g., default interest) and other charges set out in a loan agreement. The new exemption applies to cross-border loans obtained by Ukrainian borrowers from foreign lenders involving the participation of foreign export-credit agencies listed on the official website of the Organisation for Economic Cooperation and Development (the “ECA”). The Cap under such loans will now not include any payments made by the Ukrainian borrower for the reimbursement of actual costs of a foreign lender incurred for the ECA’s services (fees, bonuses, commissions, etc.).

Regulation No. 404 becomes effective on 30 November 2016.

Investment in Foreign Debt Instruments, Derivative Transactions and Guarantee Deposits allowed for Ukrainian banks

With effect from 23 November 2016, under Regulation No. 406, Ukrainian banks can now invest into foreign debt instruments with a high credit rating without an NBU individual licence which was previously required for such transactions. The banks can proceed with the above transactions if certain conditions are met, including:

(i) the issuer of debt securities must be an international financial institution or from a Big Seven country;

(ii) the issuer of debt securities that is the subject of investment should have an official rating not lower than 'AA -' / 'Aa3', confirmed by at least two leading rating agencies (Fitch Ratings and/or Standard & Poor’s and/or Moodys);

(iii) debt securities that are subject to investment must be denominated in US dollars, yen, euro, pound sterling or Canadian dollar.

Previously the two main options for Ukrainian banks to place free foreign currency funds was to grant them as interbank loans or place on correspondent accounts. The liberalisation introduced by Regulation No. 406 should allow Ukrainian banks to increase the profitability and reduce the credit risks associated with the placing of foreign currency funds on correspondent accounts.

Also, Regulation No. 402 allows Ukrainian banks to carry out their own derivative transactions on the stock exchanges where the underlying asset is foreign currency or exchange.

Finally, Regulation No. 402 allows Ukrainian banks that are members of the international payment system to place guarantee deposits in an amount exceeding USD 50,000 on accounts of such payment systems abroad. As was previously the case, such transactions are subject to the NBU’s individual licences.

Foreign Investment Repatriation

Regulation No. 402 allows assignment of an investment deposit held in a Ukrainian bank by one foreign investor to another. In certain circumstances this may be an option for a foreign investor to repatriate its investment.

FX purchase by Importers

In addition, according to the Regulation No. 402 Ukrainian banks can now purchase foreign currency for their clients for the purposes of import transactions even where such clients may have their own funds in the foreign currency exceeding USD 25,000 or its equivalent (which was not possible before), provided, however, such funds are used for the purpose of:

- the same payment for which the additional foreign currency is purchased; or - other payments of the same client, if such are made on the same day on which the payment for which foreign currency was purchased is made.

Legislation: Regulation of the National Bank of Ukraine “On Introducing the Amendments to Regulation of the National Bank of Ukraine dated 14 September 2016 No. 386” No. 402 dated 22 November 2016

Regulation of the National Bank of Ukraine “On Introducing the Amendments to Certain Regulations of the National Bank of Ukraine” No. 403 dated 22 November 2016

Regulation of the National Bank of Ukraine “On Introducing the Amendments to Regulation on the Procedure for Residents to Obtain Foreign Currency Loans from Non-Residents and on Residents Providing Foreign Currency Loans to Non-Residents” No. 404 dated 22 November 2016

Regulation of the National Bank of Ukraine “On Introducing the Amendments to Regulation on the Procedure for Issuance of the Individual Licences for Making Investments Abroad” No. 406 dated 22 November 2016