The FINANCIAL -- The EBRD is joining forces with local authorities to help implement a new financial restructuring procedure in the Ukrainian banking system in order to reduce the amount of non-performing loans (NPLs) and in the context of wider efforts aimed at support for the financial sector in the country.
The framework, introduced by the Law on Financial Restructuring in late 2016, is designed to improve the portfolios of financial institutions by making them more sustainable and competitive. It is also expected to contribute to the quality of customer relations between banks and corporate borrowers.
A properly functioning banking system is the core of a well-functioning market economy. In its new transition concept, the EBRD says that a successful economy should be competitive, inclusive, well-governed, green, resilient and integrated.
Under Ukraine’s new Law on Financial Restructuring, drafted with the help of both the EBRD and the World Bank, lenders and borrowers will be able to rely on voluntary out-of-court debt restructuring to restructure their loan agreements. The law aims to support the return of distressed Ukrainian companies to viability through mechanisms such as loan rescheduling, partial debt forgiveness and the conversion of debt to equity. The law provides a limited standstill on lender action and protection to borrowers from the initiation of new bankruptcy proceedings while restructuring negotiations are ongoing, according to EBRD.
The new financial restructuring framework will be managed by a locally-based administrative secretariat responsible for processing individual restructuring cases, while an arbitration committee will manage any disputes between parties through the appointment of an independent and qualified arbitrator selected from an officially approved list.
The financial and logistical support for the operations of the secretariat is provided by the Independent Association of Banks of Ukraine and the EBRD. The framework and implementing institutions are governed by a supervisory board which will include representatives of the National Bank of Ukraine, the Ministry of Justice of Ukraine, the Ministry of Economic Development and Trade of Ukraine as well as the state-owned banks Oschadbank and Ukrgazbank.
Francis Malige, EBRD Managing Director for eastern Europe and the Caucasus, said: “This truly revolutionary procedure is designed to address the issue of NPLs in Ukraine, which rank among the highest in Europe. It provides a much-needed out-of-court loan restructuring mechanism for market participants and will help to preserve jobs as well as restore viable businesses.”