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On NBU Board Resolution On Details of Some Foreign Exchange Transactions

23.02.2015

press release

 

The current situation in the money market, especially in its foreign exchange segment, points to the build-up of substantial disequilibrium. Despite the fact that there are no fundamental reasons for the depreciation of the hryvnia exchange rate, panicky sentiment has gripped the market. Considerable mismatches are blamed on businesses, in particular, importers and exporters, who allegedly use import contracts on advance payment terms as a pretext for capital exports, thus exerting more pressure on the foreign exchange market.

Therefore, the policy of tightening currency discipline for economic entities will contribute to a stronger hryvnia, and pave the way for Ukraine to receive international financial assistance.

The Board of the National Bank of Ukraine has adopted  Resolution No 124, whereby additional measures governing the execution of foreign exchange transactions by banks would be put in place. The aforementioned administrative measures apply solely to importers. The aim of these measures is to tighten control over foreign exchange transactions carried out by importers under foreign economic (agreements) contracts involving advance payments. The administrative measures include the following:

 

1. A ban is imposed for banks on purchase of foreign exchange on behalf of clients if loans borrowed from banks are used for this purpose.

2. An authorized bank is required to secure an approval (permit) from the National Bank of Ukraine to make advance payments exceeding the equivalent of USD 50 thousand. At the same time, this restriction shall not apply to import contracts (no permit is required from the National Bank of Ukraine) under which the payment is settled by a letter of credit. In this case, a letter of credit should be confirmed by banks that are ranked as investment grade. Import contracts valued less than USD 50 thousand involving advance payments are not subject to additional verification by the National Bank of Ukraine.

3. The letter of credit payment method is required for banks' operations involving payments to settle clients' import contracts exceeding USD 500 thousand. In this case, a letter of credit should be confirmed by banks that are ranked as investment grade. The aforementioned restrictions shall apply to banks' operations involving purchase and transfer of foreign exchange that are carried out on behalf of clients and banks' own transactions.

Therefore, the measures taken by the National Bank of Ukraine will contribute to tightening the payment discipline of importers and expand the scope of responsibility of banks to include the exercise of control over clients' settlements under import contracts. The move is intended to prevent capital flight outside Ukraine and help stabilize the foreign exchange market.

 

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Last modification   23.02.2015