Update on amendments to FX transactions and market

Finance Alert

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The National Bank of Ukraine (NBU) has made a further step towards liberalising the currency regime for ECA supported lending. These amendments became effective on 30 November 2016. Pursuant to them Ukrainian borrowers and their authorised banks can repay fees and commission to foreign lenders in amounts exceeding the NBU's mandatory threshold calculated on the basis of the statutory interest rate cap, provided that: (i) such payments are purported to indemnify the lenders' cost payable to the ECA for its services; (ii) the ECA is recognised on the official website of the OECD. Such payments should be excluded from the calculation of a mandatory interest rate cap which makes Ukrainian borrowers more competitive in the ECA financing space.

The NBU is keeping up the pace of liberalising the tough currency regime implemented earlier across the FX market as part of a stabilisation plan. It is worth highlighting other amendments which the NBU recently introduced on 23 November 2016.

Key points from recent NBU amendments include:

  • Ukrainian banks are entitled to use currency futures, options, other exchange-trade derivatives in respect of the currency and FX rate. This enables banks to lock-in the currency or FX rate and hedge against the risk of the adverse movement of the FX element of a transaction. Banks are able to elaborate suitable hedging strategy for their portfolios, which should adjust tension on the domestic FX market.
  • A deadline for closing out the aggregate long opened position of banks (Л13-1) was extended until 1 January 2019, whereas earlier Ukrainian banks had to close out it within a year. Therefore, banks have received additional time for complying with the limit for long opened position by restructuring their loans denominated in a foreign currency.
  • Ukrainian banks may trade with non-residents and invest in investment grade securities issued by IFOs and sovereign issuers of G7 countries, rated by at least two reputable rating agencies (S&P, Moody's or Fitch) with a minimum corporate rating (AA- or Aa3). The securities are to be denominated in USD, EUR, JPY, GBP, CAD and the redemption date should not be longer than five years from the trade date. Accordingly, if the features of securities meet the abovementioned eligibility requirements, no NBU individual licence is required for such deal.
  • Banks which are a member of international payment systems (VISA, MasterCard) may purchase foreign currency in excess of US$50,000 per calendar month to make a guarantee deposit, which will be placed abroad according to rules of international payment systems.

For further information, please contact the authors.