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Adoption of the law on restructuring of foreign currency loans would harm the country’s economy

Adoption of the law on restructuring of foreign currency loans would harm the country’s economy

The law on restructuring of loans in foreign currency that has been adopted by Verkhovna Rada is a populist move which will result in destruction of country’s economy.

This statement was made by representatives of the banking community during press briefing in Ukraine Crisis media Center.

On July 2 Verkhovna Rada adopted the law which forces commercial banks to transfer consumer loans and mortgages issued in 2007-2009 in UAH at the rate of 5.05 UAH for $1.

299 deputies voted for this law, however, part of them later withdrew their voices saying that they hadn’t figured out what they voted for.

The document was put to the vote under the guise of social protection of borrowers who due to sharp devaluation of UAH had lost ability to pay for their loans in foreign currency.

However, participants of press briefing in Ukraine Crisis media Center categorically denied this thesis and, on the contrary, declared its anti-social direction.

Populist law on restructure of loans will cause huge losses

Populist law on restructure of loans can undermine economy by causing huge losses

‘We estimate losses at least in the amount of 95 billion UAH incurred to the national economy by adoption of this law. And this is without taking into account the costs which we’ll incur for the withdrawal of insolvent banks (which will appear as a result of the law when it enters into force) from the market and transiting them info Deposit Guarantee Fund. It means the reduction of social payments from the budget because it will be necessary to allocate funds for the payment of the sums on deposits guaranteed by the law’, – said Victor Novikov, member of the board of the National Bank of Ukraine.

Executive director of the Independent Association of Banks of Ukraine (NABU) Olena Korobkova clarified that according to NABU estimations banking system would annually lose about 2 billion UAH due to parliament’s decision (in addition to mentioned 95 billion UAH). However, rapid deprecation of hryvnia will be the most painful consequence and ordinary citizens will instantly feel it. ‘We might have exchange of 40 hryvnia per 1$, and we might have 50’, – Elena Korobkova said. Because all banks would come to interbank market to meet demands of investors and everyone would feel it.

The document will undermine trust in banking system

Populist law on restructure of loans can undermine economy by causing huge losses

The participants of the press briefing stated that the ideology of the document undermines trust to the banking system because it eliminates the factor of virtuous borrower making it less protected in comparison to the debtor. It also contradicts the agreements which have been reached between Ukraine and International Monetary Fund and registered in Memorandum on Economic and Financial Policies which, in particular, clearly states that the state doesn’t interfere with relationship between borrower and the banks – it corresponds to international practice.

In addition, Victor Novikov underlined that in August 2014 the National Bank suggested variants to get out of situation, however, the parliament wouldn’t support these legislative initiatives. There was one bill which failed the necessary discussion.

The representative of the National Bank of Ukraine Andrey Dubas said that debtors who are trapped due to devaluation of UAH have a way out of situation so far: they can restructure their loans at standard conditions set in Memorandum which has been adopted by majority of Banks.

Among other things the Memorandum identified separate category of socially disadvantaged people who can get benefits and part of their debt is remitted.

Head of Ukrainian Reforms media Center Taras Kachka believes that this approach when participants of certain market agree on exit of the crisis situation is an example of reform when member agree among themselves without waiting for legislative solutions.

Implementation of reform doesn’t necessarily occur through laws of regulations. There are tools which allow making progress by achieving individual decisions without legislative intervention. The main thing is that the problem is solved. ‘We must use all opportunities to restore confidence in the banking system’, – Taras Kachka summed up.

Source: Ukraine Crisis Media Center

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