KYIV – 21 February 2013

Banking Flash

The National Bank of Ukraine (the “NBU”) explained the peculiarities of application of certain provisions of the Civil Code of Ukraine (the “CCU”) to credit relations between residents and non-residents.

In its letter No. 29-213/1846-1878 dated 14 February 2013 the NBU touched upon the issue of application of provisions of part 6 of Article 10561 of the CCU to credit relations between residents and non-residents. The mentioned provision of the CCU establishes the necessity to foresee the maximum amount of interest rate increase in loan agreements with variable (floating) interest rate.

The NBU is of the opinion that the requirement to stipulate the maximum amount of the interest rate increase in the loan agreement with the floating interest rate is of imperative character and shall be respected by parties to a loan agreement irrespective of the governing law of the agreement.

In practice this issue became widely discussed since 10 November 2012, when the amendments to the NBU Regulation On Order of Receiving by Residents of Credits, Loans in Foreign Currency from Non-Residents and Granting by Residents of Loans in Foreign Currency to Non- Residents became effective. These changes introduced a separate line into the notification on the loan agreement, which is to be submitted for the registration of a cross-border loan agreement with the NBU, indicating the maximum amount of increase of the floating interest rate.

Such amendments at that time received heavy critics from the side of both the foreign creditors and the Ukrainian borrowers, as in many cases they significantly complicated the process of negotiations related to cross-border loans and their registration with the NBU.

We would be happy to answer any of your questions on banking activity in Ukraine, should the need arise.

Sincerely yours,

Oleksander Plotnikov
Counsel
E-mail: Oleksander.Plotnikov@arzinger.ua