The National Bank of Ukraine
urges parliament to back Draft Law No. 2286-а On Amendments to
Certain Legal Acts of Ukraine on the Restoration of Trust Between Borrowers and
Lenders (hereinafter Draft Law No. 2286-а).
There are gaps and loopholes in
the Ukrainian laws, which are used by unscrupulous borrowers who turn them into
quasi-legal schemes so as not to repay their debts to
creditors and get away with delinquent debt settlement The lenders’
rights are limited when it comes to bankruptcy proceedings.
Suretyship arrangements
are not efficient and banks risk losing the mortgaged property in the event of
unauthorized construction. Additionally, when it comes to handling inheritance
cases, debt collection procedures are partly covered by the existing
legal framework. The gaps in the laws allow the foreclosure
(dispossession) of the debtor's property without the consent of the pledge
holder) as well as the suspension of the mortgage enforcement proceeding
through legal action, in spite of the outstanding debt owed to the lender.
“All these the shortcomings of
the existing legal framework do not make lenders do feel secure in regard to
repayment of the loan and discourage the latter from lending again. High risks
of default on loans make banking institutions scale down extensive lending
programs and conduct business only with credible clients. Some banks are
limited to performing only servicing operations for clients, notably, the
execution of funds transfers,” said Director of the NBU Legal Department, Mr Oleh Zamorskyi.
“Draft Law No. 2286-а is intended to address gaps in the laws, which were
earlier used by borrowers to avoid meeting their debt obligations”.
According to Mr Zamorskyi,
the protection of the creditors' rights will help mitigate risks at all stages of
the lending process: loan disbursement, loan servicing and repayment)
“We also expect nonperforming
loans and distressed debts to decrease in the future once this Draft Law is
passed. If creditors have their rights legally protected, they will be able to
ease lending conditions for potential borrowers. The move will help
boost lending, cut borrowing costs, thus making banking products lending more
accessible and affordable for businesses and individuals,” said Mr Zamorskyi.
Draft Law No. 2286-а, inter alia,
will:
• Streamline the legal framework
governing bankruptcy proceedings and strengthen the protection of the
creditors’ rights in these proceedings;
• Mitigate risks associated
with the use of managed bankruptcy proceedings;
• Minimize the potential of
corrupt practices designed to sell the debtor's property to certain persons at
reduced prices;
• Ceate appropriate
conditions to ensure openness and competitive mechanisms allowing the sale of
property at the highest price possible (in particular, it will be impossible to
sell a property complex for one hryvnia);
• Provide some additional
protection of the rights of creditors under a suretyship agreement
and in case of inheritance;
• Eradicate corrupt practices of
using unauthorized construction to prevent the satisfaction of creditors'
claims with respect to the property under mortgage in cases of unauthorized
construction and redesign of the property.
The NBU underlines that without
putting in place efficient mechanisms allowing the return of funds to Ukraine’s banking
system, it will be impossible for banks to resume lending to the real sector
and cut borrowing costs. Therefore, the adoption of this draft law
is strategically important for Ukraine's economy.
Draft Law No. 2286-а was
submitted to parliament for approval on 3 July 2015. The adoption of this
draft law will enable Ukraine to meet its commitments under the Memorandum on
Economic and Financial Policies with the IMF.
Twenty-six draft laws required
for advancing financial sector reforms are pending approval by
parliament. These include strategically important draft laws
pertaining to the protection of creditors and financial services consumers'
rights, financial restructuring of corporate debts, consolidation of the state
regulation of financial services markets functions, as well as anti-money
laundering draft laws.
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