Rada approves bill on restructuring of old mortgage loans

Ukraine’s parliament voted on April 13 to approve a new
bill on the restructuring of foreign currency mortgage loans (#4475). Based on
this bill, borrowers will have three months to apply for the restructuring of
foreign currency mortgage loans in the case that they have a single living
premise, backed under such loan, of no more than 140 sqm size for a flat and
250 sqm for a house and have no overdue payments for that loan as of January
2014.

The bill retrospectively re-calculates interest rates
on such loans based on the Ukrainian index of deposits (6.48% in USD before
2012, about 8% in 2012-2016, 5.65% in 2017, about 3.6% in 2018-2019, 2.56% in
2020). The amount of interest paid on top of the retrospective rate decreases
the principal value of the loan. On top of that, the loans are converted to UAH
at an exchange rate which is the average between the rate as of the loan
initiating (about UAH 5.05/USD) and the rate of the restructuring date (UAH
28.0 as of today). The loans should be payable gradually in ten years and the
new interest rate should be equal to Ukrainian deposit index in UAH as of the
restructuring date plus 1pp (9.42% as of today). The rate should be revised
annually. The banks can offer better restructuring conditions.

Most foreign currency mortgage loans were provided by
Ukrainian banks in 2005-2008. Since mid-2009, the banks have not been allowed
to provide foreign currency loans to individuals. As of mid-2009, the gross
amount of foreign currency individual loans provided by the banks was USD 34
bln. As of end-January 2021, the gross amount of such loans held by the banks
was USD 1.21 bln, of which 96% classified as non-performing. The biggest
holders of such loans are Alfa Bank (USD 0.28 bln, 98% of which are
non-performing) and Privatbank (USD 0.40 bln, 99% of which are non-performing).
Another big holder of such loans is the Deposit Guarantee Fund, whose foreign
mortgage loans also can be restructured under the approved bill.

Alexander Paraschiy: The most attractive option for the borrowers is a preferred conversion
rate of such loans to Ukrainian currency (about 16.5 UAH/USD, or 40% below the
current rate). The bill is purely populistic but it is likely to help some
banks to revitalize the non-performing mortgage loans remaining since the
mid-2000s. For the banks, such restructuring should not be painful, as most
mortgage NPLs are fully provisioned. However, it is not necessarily the case
that most borrowers will use this attractive restructuring option, so we expect
that the problem of mortgage NPLs will remain open after the window of
opportunity offered by the government is closed.