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Ukraine's National Bank Exempts Payments by Ukrainian Sureties to Foreign Lenders from the...

September 2011 - EU & Competition. Legal Developments by Asters.

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Licensing Regime

On 25 July 2011, the National Bank of Ukraine (the "NBU") adopted an amendment (the "Amendment") to the Regulations enacted by NBU's Resolution No. 266 dated 17 June 2004, pursuant to which payments by Ukrainian sureties to foreign lenders in connection with loans provided to Ukrainian borrowers were exempted from the NBU licensing regime (the "Exemption") which previously required obtainment of an NBU's individual license for each such payment. The Exemption applies, if such payment is made to fulfill Ukrainian borrower's obligations under a loan agreement registered by the NBU. The Amendment has come into force on 5 September 2011.

Standing concern
Under Ukrainian law, Ukrainian borrowers may receive financing from lenders, which are not banks or financial institutions, only in the form of "borrowings", but not "loans". Borrowings and loans are similar but still different types of transactions in Ukraine. "Borrowings" are frequently used as financing instruments between affiliated foreign entities (which would normally be corporate loans in other jurisdictions). However, the Exemption appears to apply only to surety's payments in connection with loans, but not "borrowings". Consequently, payments under such suretyships with respect to borrowings appear to remain subject to obtainment of an NBU's individual license. As reasonability of such a conclusion is not persuasive, further clarifications of the NBU may help to finalize this matter.

The licensing regime for the surety payments was introduced by the NBU in accordance with its formal clarification letter dated 15 November 2010 (the "Letter). In the Letter the NBU explained that in order to make a payment to a foreign lender a Ukrainian surety had to obtain an individual license from the NBU unless the surety was an authorized bank or financial institution. Although the Letter technically did not create new binding rules but rather contained the NBU's interpretation of the then effective currency law, Ukrainian banks used to strictly follow the approach stated in the Letter while servicing payments under suretyships executed both prior to and after the date of the NBU's Letter.