Ahead of the introduction of anticipated fundamental changes to the Ukrainian currency control regulation by a draft Law of Ukraine “On Currency” (adopted in its first reading by the Ukrainian Parliament on 17 May 2018, and expected to come into force following its adoption in the second reading and subsequent approval by the President of Ukraine), effective from 28 April 2018, the National Bank of Ukraine (“NBU”) introduced a number of positive measures to make foreign currency (“FX”) transactions easier for all market players. In particular:

• Foreign accounts of Ukrainian banks – new security opportunities

Ukrainian banks can now place FX funds on any type of their accounts opened with foreign banks (earlier they could only use their correspondent accounts with foreign banks for such purposes). 

We expect this change to increase the number of secured cross-border finance deals with Ukrainian banks as it would be easier for foreign lenders to (i) create a security over foreign bank accounts of Ukrainian banks; (ii) establish cash sweep mechanics over such accounts; or (iii) provide direct debit rights for the lender in the event of default under the finance agreements. Additionally, following the registration with the NBU of a relevant cross-border loan, Ukrainian banks will be able to disburse all or a part of the loan to their foreign accounts (for example, for the purposes of establishing a debt service reserve account).

• Further exemptions from the cap on cost of funding

The NBU excluded premium or similar costs of A-rated foreign states which act as insurers, guarantors, or surety providers (including entities authorised by such states or entities where such state is a shareholder) from the NBU`s mandatory cap on the cost of funding applicable to the cross-border FX loans (generally such cap includes the interest, all fees, costs and expenses under the cross-border loan).

This step will now resolve certain currency control issues previously existing around the quasi-foreign state guaranteed financing deals and provide additional comfort for foreign lenders.

• E-licencing simplified for the Ukrainian individuals

The NBU amended its e-licencing rules and further extended the list of documents which Ukrainian individuals may provide to their account banks to confirm the source of funds for the FX transactions. Such list now includes the documents evidencing: (a) results of business activities (including, in case of individual entrepreneurs, slips confirming the payment of the unified tax and the relevant tax returns); (b) sale of property; or (c) funds being a community (joint) property of the spouses.

The above changes comply with the NBU’s ongoing liberalisation of the currency controls in Ukraine aiming to improve foreign lending and investment climate. In particular, recently the NBU took the following steps:

• allowed foreign investors to repatriate their dividends accrued for the financial year of 2017 and established a single cap of USD7 million per calendar month for the repatriation of the dividends
• allowed Ukrainian borrowers to make early prepayment under cross-border FX loans, which do not fall under specific exemptions, within a cap USD2 million per calendar month
• cancelled the mandatory sale of FX proceeds for transactions where the funds raised as loans are used to refinance existing debt to non-residents or authorised banks.