Ukraine parliament adopts law on credit register

Ukraine’s parliament voted on Feb. 6 to approve a bill
creating a centralized register of all the nation’s borrowers whose debt to a
bank exceeds 100 minimum wages (about USD 13,500). The register will be kept by
the central bank, which will provide information on debtors at the request of
banks. Such a database will include, among other, the amount of outstanding and
overdue debt and the debtor’s credit class/rating. All banks will have to
provide information on existing loans as of April 2018, which won’t require the
permission of their debtors. For new loans, the banks will have to get
permission from their individual borrowers, without which they can deny loans.
As of 2019, all banks will be required to use the information from the credit
register to estimate their credit risk.

The law was adopted with 226 votes, out of the minimum
226 needed.

Alexander Paraschiy: This is an encouraging
development for Ukraine and its banking system, provided President Poroshenko
signs the bill. The adoption of this bill was among the key demands of the
European Commission as part of its macro financial assistance (MFA) program
with Ukraine. It opens the possibility for Ukraine to initiate a new MFA
program, as was announced by Poroshenko in November.

A centralized transparent database on the quality of
borrowers will reduce the risks and costs of banks related to issuing loans to
new clients. That should reduce the overall cost of lending and significantly
improve such costs for borrowers with good credit history. All in all, it
should contribute to increased lending activity in Ukraine and better economic
growth in the mid-term.

It may also force the banks to uniformly evaluate the
credit ratings of their common debtors, which, in the short term, may create
additional troubles for the banks that behave more aggressively with their borrowers
(e.g. it often happens that the same borrower is smoothly servicing his debt to
one bank, enjoying a good internal credit rating, but is in default to another
bank). At the same time, in the mid-term, it will enable the less aggressive
banks to benefit from improved borrowers’ discipline. That may allow the
banking system to faster resolve the issue of non-performing loans.