On 30 December 2015, the National Bank of Ukraine (the “NBU”) issued Regulation No. 996 (the “Regulation”) which introduces amendments to the previous NBU Regulations, in particular, to the NBU 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. 270 dated 17 July 2004. The Regulation enhances control over the (re-)registration of cross-border loans by way of obliging servicing banks and the NBU to carry out additional checks and by extending the list of documents that borrowers must provide. The Regulation became fully effective on 11 January 2016.
Prohibition to assign foreign currency loans is now cancelled
The Regulation cancels the temporary prohibition on assignment of foreign currency loans which has been in effect since 22 August 2015. Previously, the NBU was prohibited from registering amendments to loan agreements in connection with: (i) the replacement of a lender and/or a borrower under cross-border loan agreements; and (ii) assignment of loans by Ukrainian lenders to non-resident lenders under foreign currency loan agreements entered into between residents (subject to certain exceptions).
Additional checks by the servicing banks and the NBU
At the same time, control over the (re-)registration of cross-border loans is now significantly enhanced. Under the Regulation, a servicing bank must examine the documents (information) in connection with the loan and the entities (individuals) involved in order to check whether a loan transaction processed by such bank may entail risky activity that would threaten the interests of the servicing bank’s depositors/creditors. Based on such examination, a servicing bank shall issue an opinion (the "Opinion"). If the submitted documents (information) are not sufficient for the bank to issue an Opinion, the bank may request the borrower to provide additional documents (information) on both the borrower and other participant(s) of the loan transaction. The Regulation does not provide for a list of such documentation, so the bank may use its discretion.
In addition, the servicing bank must request additional documentation from the borrower and submit it to the NBU for the registration of the loan agreement or amendments thereto, in particular, in the following cases: (i) if a lender and/or a borrower is replaced as a result of assignment of the loan, transfer of debt under the loan agreement or legal succession; and (ii) if a loan agreement contemplates providing a loan by way of direct payment to the supplier of a borrower under a foreign economic contract (without crediting the loan to the borrower’s account at the servicing bank). The Regulation does not provide an exhaustive list of additional documents to be submitted in the above cases. Instead, the Regulation contains some vague definitions of these documents, such as “documents evidencing the economic viability of the transaction” or “documents confirming the origin of amounts to be used for the repayment of the loan”, which confers discretion upon servicing banks in determining which documents shall be submitted. The term for the NBU to examine such additional documents shall not exceed 30 calendar days and is not included in the general term for the registration of the loan agreements (see below).
Terms for registration of cross-border loans are now extended
The term for examination of the documents submitted to the servicing banks for the registration of cross-border loan agreements is extended from four to seven working days, while the term for the NBU to register such agreements is further extended from five to seven working days.
The Regulation is aimed at preventing capital outflow from Ukraine by way of enhancing the NBU’s and the banks’ supervision over cross-border foreign currency loans.
Legislation: Regulation of the National Bank of Ukraine “On Introducing Amendments to Certain Regulations of the National Bank of Ukraine” No. 996 dated 30 December 2015.