Rada prolongs moratorium on property foreclosure under FCY mortgages

Ukraine’s parliament voted on July 16 to prolong for
one year a moratorium on the foreclosure of individually owned property pledged
under foreign currency (FCY) mortgage loans. The moratorium, imposed in 2014,
is scheduled to be replaced in October by a set of laws on improving creditors’
protection signed in April 2019. They
include a bankruptcy code, which allows the borrowers under FCY-based mortgage
loans to restructure them on special conditions. Commenting on the plan to
prolong the moratorium, the National Bank wrote on July 15 that this will make
impossible the anticipated launch of cheap mortgage loan programs.

Alexander Paraschiy: About
44,000 mortgage loan agreements of a total value of UAH 29 bln (USD 1.1 bln)
may be affected by the moratorium, according to the NBU. Clearly, the affected
borrowers are likely to support The People’s Servant party, whose MPs initiated
this law, at the October local elections as a token of their appreciation. Such
populist legislation is fully in line with the agenda of Zelensky and his
party.

However, it won’t have a significant effect for
Ukraine’s banking system, as most banks were able to agree with their borrowers
on restructuring their FCY-based mortgage loans, all of which were initiated
before mid-2019 (since then, FCY-based mortgage loans have been prohibited).

The new moratorium is unlikely to have a direct effect
on the desire of banks to provide new mortgage loans in local currency (such
loans are not affected by the moratorium), though there could be an indirect
negative effect. For instance, the ease of approving the moratorium extension
(349 MPs supported this initiative in two readings in just one day) indicates
the MPs could quickly adopt any other legislation that will make business
harder for creditors. Consequently, banks are likely to include such risks in
calculating their lending rates.