NBU's ban on restructuring foreign currency loans: how it affects entrepreneurs

The current economic situation in Ukraine, given the hostilities, requires an immediate review of some of the National Bank's financial decisions. One such decision is the ban on restructuring foreign currency loans by converting them into hryvnia. The abolition of this ban is a necessary step to stabilize the economy and support borrowers who find themselves in a difficult situation due to currency fluctuations and economic turmoil, UNN writes.

As noted in the comments to UNN by interlocutors from the banking sector, the National Bank's resolution banning the conversion of foreign currency loans into hryvnia creates an additional burden on businesses with such loans.

Entrepreneurs with foreign currency loans are at risk of significant financial losses due to exchange rate fluctuations. In addition, the inability to restructure loans into hryvnia means that businesses are forced to spend additional funds to service their foreign currency debt, which reduces their profitability and competitiveness.

In addition, fluctuations in the hryvnia exchange rate against foreign currencies can lead to a significant increase in the amount of debt in the national currency, which creates financial difficulties for businesses.

"If the situation does not change, it is highly likely that they (business representatives with foreign currency loans - ed.) will end up in default, or go bankrupt, or look for another way to avoid fulfilling their obligations if they do not have foreign currency income," say the agency's banking sector sources.

At the same time, business representatives in a conversation with UNN emphasized that the National Bank critically needs to revise the resolution in the near future. After all, the longer the ban on converting foreign currency loans into hryvnia remains in place, the harder it will be for businesses to "survive" in the already difficult working conditions.

"As for foreign currency loans, it is clear that today, when there is a constant expectation of the hryvnia falling, it is urgent to save Ukrainian business and urgently convert everyone into hryvnia," said businessman and economist Serhiy Dorotych in an exclusive commentary to UNN.

He added that foreign currency loans are a problem created by the state, as the National Bank itself used to encourage taking out foreign currency loans.

"Businesses benefited from this, and now they are trapped. We need to cancel it all immediately," Dorotych said.

Lifting the ban will help support businesses, especially small and medium-sized ones, which are the backbone of Ukraine's economy. In the context of war and economic instability, businesses face numerous challenges, including logistical disruptions, loss of labor, and physical damage. Allowing the restructuring of foreign currency loans will allow businesses to focus resources on restoring and continuing their operations, which will contribute to the overall stabilization of the economy.

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Supporting businesses in times of war is critical to the country's economic resilience and recovery. Government policy should be aimed at creating favorable conditions for doing business, reducing administrative barriers and providing financial support so that businesses can continue to operate and contribute to economic growth, rather than driving them into debt and bankruptcy.

Experts emphasize that while restructuring foreign currency loans may pose short-term challenges to the banking system, it will strengthen it in the long run. Reducing the risks of default and increasing the solvency of borrowers will contribute to the stability of banking institutions. In addition, a positive restructuring experience can improve confidence in the banking system, which is critical for the country's economic recovery.

Given the economic, social and financial aspects, lifting the ban on restructuring foreign currency loans by converting them into hryvnia is a necessary step. This decision will help to reduce financial pressure on borrowers, support businesses, strengthen the banking system and generally stabilize Ukraine's economy. The government must act decisively and quickly to adapt its financial policy to new challenges and ensure the resilience of the economy in the face of war and subsequent recovery.

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Since the beginning of the full-scale invasion, Ukrainian business has demonstrated resilience and readiness to quickly adjust to current challenges.

In the case of the ban on converting foreign currency loans into hryvnia, Ukrainian businesses often take unpopular steps to stay afloat and avoid losing everything.

One of the Ukrainian businesses that has a foreign currency loan that dates back to 2006 is the owners of the Gulliver shopping center in Kyiv. By the way, at the time of the loan, the company that received the loan had other owners. The crises of 2008 and 2014 dealt an irreparable blow to businesses that were lent in foreign currency. This led to the fact that the current owners of Gulliver were forced to restructure their debt in 2020. However, it was not possible to convert the loan into hryvnia.