In its e-mail dated 14.02.2013 addressed to banking institutions of Ukraine, the National Bank of Ukraine ("NBU") issued guidance on the practical application of Article 10561 of the Civil Code of Ukraine regulating accrual of interest under a loan agreement ("Explanations").

This article of the Civil Code allows for a fixed or variable interest rate under a loan agreement, as well as providing details on the application of such interest rate. In particular, part 6 of Article 10561 provides the need to specify in the loan agreement the maximum interest rate increase, should parties enter into a loan agreement with a variable interest rate.

Under the provisions of private international law participants in legal relations are allowed at their own discretion to choose the law to be applied to the content of their legal relations. In particular, parties to an agreement are free to elect the law to be applied to the agreement. However, these rules do not apply to imperative norms of Ukrainian law governing the relevant legal relationships, which must be applied irrespective of the choice of law in the agreement.

The Explanations issued by the NBU stress that the requirements for determining the maximum interest rate increase are of an imperative nature, therefore, parties to a loan agreement, irrespective of their choice of foreign law to regulate their relationship, must comply with the requirements of Article 10561 of the Civil Code.

It should be noted that such explanations of the NBU are not classified as a regulatory act which is legally binding upon state and local government bodies, banks, enterprises, organizations and institutions regardless of their form of ownership (Article 56 of the Law of Ukraine "On NBU"). However, given the status and role of the NBU, there is a risk that it could refuse registration of loan agreements which do not contain a clause that determines the maximum interest rate increase in a variable interest rate loan.

We hope that the information contained in this newsletter will be of service to you.

Please do not hesitate to contact us should you have any questions on the above.

Oleksandr Kurdydyk

Partner

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Eoleksandr.kurdydyk@dlapiper.com

Rodion Ignatenko

SeniorAssociate

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E rodion.ignatenko@dlapiper.com