Ukraine’s central bank has lifted the ban on the payment of interest in foreign currencies under cross-border loans from 6 September 2022, subject to certain conditions. The ban on interest payments and the repayment of cross-border loans was introduced in February immediately after the start of Russia’s unprovoked and illegal invasion of Ukraine. This note briefly describes the conditions under which interest payments under cross-border loans became possible from 6 September 2022 and details other new rules that were introduced for corporate business to make cross-border payments from Ukraine.
Conditional Interest Payments
On 2 September 2022, the Board of the National Bank of Ukraine (the “NBU”) adopted Resolution No. 197, which allows conditional interest payments under cross-border loans.
As the first step in the liberalisation of the FX regime under cross-border loans, the NBU allowed partial the repayment of interest under cross-border loans under the following conditions:
- the date of accrual of the relevant interest falls between 24 February 2022 and 10 August 2022 (inclusive) under the terms of the relevant loan agreement (it is prohibited to amend a loan agreement to artificially move the accrual and due date for payment of any interest to this period);
- the Ukrainian borrower was not in default under the loan on 24 February 2022;
- the aggregate amount of interest to be repaid in one calendar month cannot exceed one-fifth of the amount of interest payable from 24 February 2022 to 10 August 2022 (inclusive) according to the terms of the loan agreement;
- the interest cannot be repaid by the borrower to a non-resident lender out of the funds borrowed from any resident lenders, including under the terms of interest-free repayable financial assistance;
- the borrower has no indebtedness in respect of tax and other mandatory duties as confirmed by the relevant certificate issued by relevant Ukrainian authorities; and
- the borrower has been carrying on its business since 23 February 2022, including paying salaries to its employees and making other mandatory payments as evidenced by relevant statements from the borrower's bank accounts.
Recommendation to Restructure Cross-border Loans
According to the NBU, the above relaxation of FX restrictions on cross-border loans is the first step in promoting the restructuring of the foreign obligations of Ukrainian borrowers.
In the Resolution, the NBU instructs Ukrainian commercial banks to recommend their Ukrainian borrowers to initiate restructuring of their indebtedness to foreign lenders. In the NBU’s view, such restructuring should be carried out on terms similar to the restructuring of Ukraine’s external debt (the relevant criteria are set out in Resolution No. 805 dated 19 July 2022 of the Cabinet of Ministers of Ukraine).
New FX Rules for Corporates
According to the Resolution, the NBU sets out a new rule to purchase foreign currency by corporates in Ukraine. A corporate must use its own foreign currency funds for any settlements with foreign counterparties. Only once the available foreign currency is depleted (to the level equivalent of UAH 400,000) is a Ukrainian corporate permitted buy additional foreign currency in Ukraine.
The NBU has also clarified that banks cannot complete their supervision over settlement terms under export-import operations based on documents evidencing the set-off of the relevant obligations. In effect, this new rule attempts to prohibit set-off under the relevant export-import operations with the use of monetary settlements via Ukrainian banks.
We hope the above information is helpful. If you have any questions regarding the Resolution or its applicability to your business, please contact us.
