Due to introduction of restrictive measures in the territory of Ukraine during the quarantine period, the National Bank of Ukraine (hereinafter the "NBU"), by its Resolution No. 39 dated 26 March 2020 (the "Resolution"), introduced special rules for application by the banks of Ukraine of the requirements of the Regulation on determination by banks of Ukraine of the credit risk on active banking operations, approved by the Resolution of the Board of the NBU No. 351 of 30 June 2016.
In particular, the NBU allowed the banks not to apply the criteria, which they must usually apply to declare the occurrence of an event of default for the debtors / counterparties performing as of 1 March 2020 and which have undergone debt restructuring (the "Relief"). The Relief is available if the following conditions are met:
- the need for debt restructuring is caused by the financial difficulties of the debtor/counterparty as a result of the introduction of quarantine and restrictions due to the spread of coronavirus;
- the bank restructured the debt between 12 March and 30 September 2020;
- the bank acknowledged the advisability of short-term debt restructuring by 1 August 2020;
- the bank proved the feasibility of carrying out long-term debt restructuring based on assessment of the debtor's/counterparty's ability to overcome financial difficulties, resume debt service and ensure its repayment, within the period provided by the terms of the restructuring;
- amendments related to debt restructuring do not reduce the cash available for debt service by more than 10% compared to the amount available under the terms of the agreement that are in force at the effective date of the Resolution.
In practice, the Resolution, via introducing the Relief, enables the banks not to account overdue indebtedness arising during the quarantine period as troubled, thus, relieving the banks from allocating provisions for the full amount of such indebtedness.
In its letter posted on the NBU website, the regulator also gives a number of practical recommendations to banks for debt restructuring as follows:
- only the loans to the borrowers, who are facing financial difficulties due to pandemic restrictive measures and are unable to service loans on time, can be restructured. The terms of the restructuring are determined by the bank taking into account the borrower's economic needs;
the restructuring procedure can be initiated either by the banks or by their clients. The banks shall receive from corporate clients evidence of significant temporary loss of income or work stoppage;
the physical presence of clients in the bank's office is not required for the restructuring. The bank independently determines the procedure for submitting / processing documents for restructuring, preferring to use remote communication channels;
the restructuring of loans of medium- and large-sized businesses should be considered individually, taking into account the latest financial statements, the current financial situation, the vulnerability of sectors and enterprises to the current economic crisis and the prospects for their recovery;
banks should not worsen the terms of of financing as a result of the restructuring. The restructuring should not lead to an increase in the effective interest rate. The banks should not require clients to pay any explicit or hidden fees for the restructuring due to the circumstances of the pandemic.
The limitations caused by the quarantine gave rise to expectations across the market of possible introduction of relief measures for all the categories of borrowers. However, statutory relief has only been granted for consumer loans. The NBU Resolution enabled granting Relief by the banks to their commercial borrowers on a voluntary basis.
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