Fighting the financial crisis in Ukraine's banking sector

Resolution of the Board of the National Bank of Ukraine «On Additional Measures Concerning Banking Activity» No. 319 adopted on October 11 2008 (cancelled on December 4 2008, hereinafter referred to as Resolution 319).

The Law of Ukraine «On Essential Measures Preventing Negative Consequences of Financial Crisis and Introductions of Amendments to Certain Laws of Ukraine» No. 639-VI adopted on October 31 2008 (hereinafter referred to as Law 639-VI).

Resolution of the Cabinet of Ministers of Ukraine «On Approval of Procedure of State Participation in Banks' Capitalization» No. 960 adopted on November 4 2008 (hereinafter referred to as Resolution 960).

Resolution of the Board of the National Bank of Ukraine «On Approval of Special Procedure of Conducting Measures Concerning Financial Recovery of the Banks» No. 405 adopted on December 1 2008 (hereinafter referred to as Resolution 405).

Resolution of the Board of the National Bank of Ukraine «On Certain Issues of the Banking Activity» No. 413 adopted on December 4 2008 (hereinafter referred to as Resolution 413).

The Law of Ukraine «On Amendments to Certain Laws of Ukraine Concerning Prohibition on Unilateral Change of Conditions of a Bank Deposit and Loan Agreements by the Banks» No. 661-VI adopted on December 12 2008 (hereinafter referred to as Law 661-VI).

Legal measures preventing pre-term repayment of deposits

Under the Civil Code of Ukraine, the bank is obliged to pay the deposit upon the first request of the depositor irrespective of the type of deposit.

While Resolution 319 was valid, the banks were obliged to pay money placed on deposits to their clients only after termination of the deposit agreement. Therefore, the depositor's right to demand pre-term repayment of deposit was restricted.

By cancelling Resolution 319 and adopting Resolution 413, the National Bank prolonged this restriction but obliged the banks to arrange all necessary measures to increase the amount of deposits. As a result, until the end of 2008 the banks started increasing interest rates to 1–2 % for short-term (one to three months) deposits, which was intended to attract new depositors and keep existing depositors from pre-term repayment of deposits. Many banks have declared an expansion in the number of the clients willing to conclude short-term deposit agreements.

Deposit restriction of the National Bank was applied in 2004 when the Ukrainian banking system was surviving a cash outflow provoked by political circumstances. At that time, the measure helped to save banking liquidity and was positively accepted by the banking community.

On the other hand, Ukrainian lawyers have criticised the legal aspects of deposit restriction, pointing out that the Civil Code of Ukraine prevails over Regulations of the National Bank of Ukraine. Such Regulations cannot contradict the Civil Code and restrict the rights it sets forth.

To improve security of deposits, Ukraine has also increased the guarantees of repayment of the deposits of physical persons. In Ukraine, repayment of the deposits is guaranteed by the physical persons' deposits guarantee fund in cases of insolvency of the bank when deposits become inaccessible. Previously the guarantee amounted to Hrn1200 (US$237) for deposits opened in one bank. Under Law 639-VI, this was increased to Hrn150,000.

Legal measures forbidding unilateral change of the loan interest rates

Under Resolution 319, the National Bank prohibited increase of interest rates under concluded loan agreements in cases where this does not correspond with the change of the accounting rate of the National Bank (which has not changed since April 2008).

Later on, the Supreme Council of Ukraine adopted Law 661-VI which provides for more significant provisions protecting the borrowers from unilateral increase of interest rates. Under this law, the interest rate stipulated in the loan agreement cannot be unilaterally increased by the bank. Moreover, according to this Law, any provision of a loan agreement giving the bank a unilateral right to change the interest rate shall be invalid.

Legal measures concerning financial recovery of the banks

Law 639-VI provides for creation of the Stabilizing Fund, money from which shall be used, in particular, for granting loans to Ukrainian banks with the purpose to reimburse or refinance loans received from foreign creditors.

Besides other important measures, Law 639-VI and Resolution 405 set forth simplified procedures involved in capitalisation of banks requiring financial recovery. Many procedures have been significantly shortened to accelerate the process of capitalisation. For example, the term for obtaining a permit from the Antimonopoly Committee of Ukraine for concentration in banking sector has been shortened up to five working days. The time allowed for claiming decisions of the bank's shareholders meeting concerning capitalisation has been reduced to one month.