The National Bank of Ukraine (the “NBU”) is continuing to expand the range of financial instruments that can be used by Ukrainian banks to attract financing from international partners.
Since 16 February 2018, Ukrainian banks have been allowed to take so called “synthetic loans” (“Synthetic Loans”) not only from international financial organisations (“IFIs”), but also from any other foreign entity. First introduced back in September 2017, Synthetic Loans are cross-border loans or borrowings that are denominated in Ukrainian Hryvnia (“UAH”) but disbursed and repaid in a foreign currency. Synthetic Loans can be granted to Ukrainian borrowers by IFIs and now also to Ukrainian banks by any other foreign lender.
In a Synthetic Loan structure, a forex risk is vested in a creditor. This is not typical for cross-border financings with Ukrainian borrowers, including those involving IFIs, At the same time, Synthetic Loans granted to Ukrainian borrowers are exempt from registration with the NBU and making any payments thereunder does not require an NBU individual licence. The rules for Synthetic Loans can also be coupled with the benefits of pre-existing exemptions from the NBU currency control regime. For example, no restrictions on early repayment of the loans apply to the bank-borrowers and the loans from IFIs are not subject to the various limitations applicable to other cross-border loans, including a maximum interest rate cap set by the NBU. Separately, foreign lenders may use various FX hedging instruments, which are not available to Ukrainian borrowers. All of this may give more flexibility to foreign lenders with respect to commercial terms for Synthetic Loans and, thus, raise their interest in this instrument.
Synthetic Loans, viewed as having high potential, are supposed to stimulate on-lending in UAH by Ukrainian banks. The prospects of Synthetic Loans, however, are very much dependent on the attractiveness of this instrument for foreign lenders.
Legislation: Resolution of the National Bank of Ukraine “On Foreign Currency Transactions under Loans and Borrowings from Non-Residents on Ad Hoc Terms” No. 12 dated 15 February 2018