Attraction of Funds (Loans, Credits)

Bank credits in National and Hard Currency

The issue of extending credits in the national and hard currency to residents is regulated by the norms of the Civil Code of Ukraine, the Economic Code of Ukraine, the Law of Ukraine “On Banks and Banking Activity”.

Extending of credits is one of banking transactions. Commercial banks perform credit transactions within the limits of credit resources they generate in the process of their activity and independently establish interest rates on their transactions.

Interest rates are fluctuating within every year. For example, credit interest rates got down from 20-22% (national currency) in January 2005 to 15-17% in June 2005. But now due to expert expectations, interest rates will grow up to 20-21% to the end of the year (credits in hard currency: January 2005 – 13-15%, June 2005 – 11-13%, prognosis to the end of the year – 13-14%). The main reason of such interest fluctuation is bank liquidity instability.

Credits (Loans) in Hard Currency from non-residents

According to clause 2 of Article 1 of the Decree of the Cabinet of Ministers of Ukraine “On the System of Currency Regulation and Currency Control” “transactions related to importation, transfer and sending into the territory of Ukraine…” of currency values shall be deemed currency transactions and are subject to regulation by currency legislation.

Attraction of funds in hard currency as credits and loans from non-residents is governed by the Regulation on the procedure for receiving by residents of credits and loans in hard currency extended by non-residents, and extension of credits in hard currency by residents to non-residents, approved by the Resolution of the NBU Board No.270 as of June 17, 2004 (hereinafter referred to as the Procedure).

Pursuant to the provisions of this Procedure, resident borrowers attract credits from non-residents through authorized Ukrainian banks, and credit agreements are subject to mandatory registration by the National Bank. A resident borrower is mandated to register the agreement prior to actual receipt of a credit. Effective legislation does not impose any restrictions regarding the term and the amount of borrowed funds. However, in accordance with the above procedure, the interest rate for using such credit as of the date of filing documents required for registration of credit agreement by the resident may not exceed the size of maximum interest rate established by the NBU Board based on the value of government borrowings at external financial markets.

Transactions involving payments made in foreign currency to entities outside Ukraine as interest on such credits do not require an individual license either.

Hard Currency Payments for Leasing Asset

Current Ukrainian legislation on currency regulation and currency control stipulates certain restrictions for currency transactions that also apply to leasing relationships . Taking into account a long-term nature of leasing transactions, the “90 days” rule applies to leasing contracts, which might be not quite fair, since certain restrictions and the requirement to obtain a license for any leasing transaction in the event of import or export of leasing asset make a leasing transaction more complicated and delay it in terms of time.

Import of Leasing Asset

Pursuant to the general rule of Article 2 of the Law of Ukraine “On the Procedure for Making Payments in Foreign Currency” import of leasing asset performed on the terms of deferred delivery (if such deferment does not exceed 90 calendar days from the moment of advance payment) requires individual licensing by the National Bank of Ukraine.

Counting of the established term of payment is started by the bank from the calendar day following the date of such advance payment.

The license for such leasing transaction is issued by the NBU central office upon presentation of all documents required by legislation with justification of the need for excess of the term of payment established by current legislation. The availability of final conclusion of the State Tax Administration regarding the possibility to prolong the term of payment is a mandatory requirement for obtaining the license.

Export of Leasing Asset

Pursuant to the general rule of Article 1 of the Law of Ukraine “On the Procedure for Making Payments in Foreign Currency”, hard currency revenues of residents must be transferred to their currency accounts within the term specified in contracts, but not later than 90 calendar days from the date of customs clearance of leasing asset. An excess of such term shall also require an individual license from the National Bank of Ukraine.

Counting of the established term of payments starts from the day following the date of issuance of cargo customs declaration for leasing asset.

The procedure for obtaining a license is similar to the procedure established for the import of leasing asset. At the same time, the bank shall only issue the license if customs clearance of leasing asset has not yet taken place.

Leasing payments

Pursuant to part 4 of Article 5 of the Decree of the Cabinet of Ministers of Ukraine “On the System of Currency Regulation and Currency Control” payments between residents and non-residents under foreign economic contracts are made in foreign currency and do not require obtaining of an individual license from the National Bank of Ukraine.