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Ukraine prohibits banks from confiscating collateral real estate

Ukraine prohibits banks from confiscating collateral real estate

4 June 2014

Ukraine’s parliament adopted a law on June 3 that prohibits the forcible alienation of real estate property pledged by individuals under loans denominated in foreign-currency. The prohibition applies to individuals with no other real estate or the pledged property is still under construction.

 

Alexander Paraschiy: Such legislation significantly limits the ability of Ukrainian banks to enforce the repayment of ForEx mortgage loans, which will clearly lead to a risk of increased NPLs. Foreign currency loans to individuals account for 6% of the gross loan portfolio of Ukrainian banks and 33% of their total equity, as of end-1Q14. The banks most exposed to such loans are Nadra Bank (39% of gross loan portfolio), Ukrsibbank (36%) and Unicredit’s Ukrsotsbank (USCB UK, 29%).

 

The reason for such legislation is a populist attempt to satisfy residents who have been hurt by the devaluation of the local currency. Foreign currency-denominated mortgage loans, which offered much smaller interest costs compared to local currency loans, were popular before the 2008-2009 crisis. Since that time, the hryvnia has devalued nearly 60% and the debt burden of such individuals, in the local currency, more than doubled.

 

In its attempt to appease these borrowers, parliament is ready to even go further as draft laws have been registered that stipulate the conversion of individual ForEx loans into the local currency, based on some historical exchange rate (as of end-2013, or as of the date of the loan’s issue). Though, government official Ostap Semerak warned on June 2 against such a move, declaring that Ukraine will not receive a second tranche of the IMF loan in the event such legislation is approved.

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