In order to reduce pressure on hryvnia rate the National Bank of Ukraine decided to impose a ban on foreign currency credits in Ukraine. Bankers discussed such aspects with NBU during their closed meeting on Friday, 4th September.
As one of the bankers informed, on Friday during the closed meeting with NBU the regulator announced about an intention to completely ban foreign currency loans in Ukraine not only for physical but also for juridical persons. “As a transitional variant, we’ll leave some types of foreign currency credits, but we agreed to if to ban something, then to ban everything.” The exact date of when this ban will come into effect has not been defined yet. “It will probably be soon,” mentioned one of the NBU representatives.

When one of the bankers got exasperated and asked what they were going to do with foreign currency deposits, if they wouldn’t be able to give foreign currency loans. So, the director of the foreign currency department answered that they were going to offer swaps.

National Bank of Ukraine began to combat foreign currency credits immediately when the economic crisis, leading to 60% devaluation of hryvnia has started. In October 2008 NBU issued a regulation #319, which allowed banks to give foreign currency credits only to residents, who had foreign currency earnings. In December NBU put new reserve rules in force, which made the foreign currency credits unfavourable: required reserve ratio of 50 percent of the loan and 100% in case of one day delinquency.
In June 2009 Verkhovna Rada passed a law, which confirmed the ban on foreign-currency loans. Physical persons could get cashless foreign-currency loans only for medical treatment or education abroad. Companies would have to have foreign currency receipts.
Banks are not against these measures, but it will make attraction of foreign currency deposits unprofitable. In order to stop the flow of foreign currency deposits banks would have to reduce the interest rates. “This innovation will increase the currency flow-out of the country through VIP-clients,” says one of the bankers, “10% interest rate doesn’t cover the risks of keeping money in Ukraine, so my clients open accounts in Switzerland or even in Czech Republic.”

Bankers also fear currency swap operations planned by NBU. “What banks will do with hryvnia, which they’ve got from NBU under standard conditions? They will not be able to loan it, so this hryvnia will go back to the currency market, spinning the rate rise.”

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