Ukraine adopts law improving creditor protections

Ukraine’s parliament approved on July 3 a bill that
removes some legislative loopholes undermining the rights of creditors. It drew
239 votes out of a 226-vote minimum needed. Afterwards, Ukraine’s central bank
(the NBU) published a press release listing inefficiencies that the bill is
aimed at improving: the poorly functioning mechanism of surety, the complicated
mechanism of determining floating interest rates, inefficient instruments of
out-of-court settlements, and loopholes allowing debtors to withdraw collateral
under loan agreements. Resolving such issues will reduce the risks of
creditors, which will result in lower lending rates and better access to loans
for business and individuals, the NBU said.

The law stipulates minor changes in other laws
aimed at improving creditor protections in various cases. For instance, the law
clarifies the responsibilities of surety providers, as the mechanism of
sureties now is inapplicable in many ways. It stipulates that any
reconstruction of pledged real estate or any construction on a pledged land
plot does not cancel the submitted collateral (reconstruction used to be a
favorite means for debtors to withdraw their collateral). It stipulates a
simple mechanism for out-of-court collateral to be seized from a defaulted
borrower and diminishes a borrower’s ability to protect himself against such
seizures.

Alexander Paraschiy: The law will
indeed add much to creditor protection and may result in increased lending
activity and better rates for potential borrowers. On top of that, the law will
allow some banks to resolve their bad loan issues by collecting collateral. All
in all, this is a positive development for the Ukrainian banking system.