Key changes
In an effort to promote business activity in Ukraine and attract additional resources for the country's economic recovery, the National Bank of Ukraine (NBU) has relaxed its foreign exchange restrictions applicable to cross-border loans attracted by Ukrainian borrowers from foreign creditors.
Effective from 21 June 2023, Ukrainian borrowers are permitted to repay and service their newly borrowed cross-border loans, if the following conditions are met:
- The loan's principal amount must be deposited into the borrower's Ukrainian bank account after 20 June 2023.
- The rate of the borrowing costs (i.e., all payments under the loan except the principal repayment such as interest, fees and other payments) should not exceed 12% per annum.
- Loans with a maturity of up to three years can be repaid and serviced using only the borrower's own foreign currency funds that were not purchased on the Ukrainian currency market for the local currency (UAH) or were not attracted as a loan from a Ukrainian creditor.
- For loans with a maturity exceeding three years, principal repayments during the first three years upon receiving the loan must be made at the expense of the borrower's own funds in foreign currency that were not purchased in the Ukrainian currency market or borrowed from a Ukrainian creditor. At the same time, the making of interest payments upon receiving the loan, as well as principal repayments starting from the fourth year, can be made using both the borrower's own foreign currency funds and foreign currency funds purchased for UAH in the Ukrainian currency market.
Payments related to the loans mentioned above must not be made prior to the payment date stipulated in the relevant loan agreement. Amendments that shorten the payment terms of the loan agreements are currently prohibited.
Background information
Prior to these changes, Ukrainian borrowers were only allowed to fulfill their obligations under cross-border loans obtained from international financial institutions (IFIs), guaranteed by state guarantees or covered by an IFI guarantee or involving a foreign export credit agency. We previously reported on such exemptions in our legal alert, which can be accessed here.
It is important to note that Ukrainian borrowers are still prohibited from fulfilling their obligations under any cross-border loans other than those mentioned above, including loans received before 20 June 2023.
Context
These recent changes have been implemented during the martial law regime, which has been in effect in Ukraine since 24 February 2022. Martial law has imposed significant restrictions on capital outflow and tightened foreign exchange controls. While the aforementioned changes represent a positive development, the overall foreign exchange regime in Ukraine remains highly restricted. Currently, transactions not explicitly permitted by the NBU continue to be prohibited during the martial law period or until the NBU lifts these restrictions.
By the end of 2023, the NBU is expected to unveil its roadmap for the gradual relaxation of the existing martial law currency restrictions. This roadmap should provide a clearer outline of the NBU's planned measures and timelines for easing the current restrictions.
