National Bank of Ukraine lifts interest ceiling for longer-than-one-year foreign loans  

In an attempt to curb negative consequences of the disturbances in the world finance markets the National Bank of Ukraine decided to abolish caps on interest rates under loans from foreign lenders to Ukrainian borrowers with the term exceeding one year. The relevant amendment of NBU's Regulation No. 363 will become effective on 27 October 2008.  Under old regime existing since September 2004 fixed interest rates under foreign-sourced loans were subject to a cap of 10 percent p.a., if the term of the loan was from one to three years, and 11 percent p.a., if the loan was for the term over three years. Floating interest rates under foreign-sourced loans were subject to a cap of 3-month LIBOR plus 750bp.

The new regulation raised an interest cap from 9.8 to 11 percent p.a. only for short-term (less than one year) loans from foreign lenders in major foreign currencies (USD, EUR, GBP, AUD, DKK, ISK, CAD, NOK, SEK, CHF, and JPY). Interest rates under loans in non-convertible currencies and in convertible currencies which are not frequently used in international transactions are still subject to a 20 percent p.a. cap.

Notably the National Bank of Ukraine did not change regulation of subordinated loans to Ukrainian banks under which interest rates are subject to a cap of USD 12M Libor + 500bps for loans provided in USD and at EUR 12M Libor + 700bps for loans provided in EUR.

Under Ukrainian law, loans from foreign lenders must be registered with the NBU (notification to the NBU is required, if the borrower is a bank) prior to any payment under the relevant loan agreement, which must contain a statement of purpose, term and interest. Interest under these loans is calculated inclusive of fees, default interest and other charges provided by the relevant loan agreements.