On 24 February 2022, the National Bank of Ukraine, in response to the introduction of the martial law in Ukraine initially imposed for 30 days but subsequently extended currently until 25 May 2022, issued Regulation No. 18 on banking system operations during martial law to prevent unproductive capital outflows from the country and to ensure the reliable and stable functioning of Ukrainian banking system during the time of war.
This Regulation has implemented temporary restrictions affecting cross-border payments, which restrictions have been gradually softened but still limit the ability of Ukrainian financial institutions, companies, and individuals to transfer money abroad, repatriate foreign investments and purchase foreign currency.
Cross-Border Payments Moratorium
A temporary moratorium has been imposed on all cross-border payments from Ukraine or into correspondent accounts of foreign banks opened in Ukrainian banks, effectively blocking all transfers from Ukraine abroad subject to certain exemptions. Purchase of foreign currency by Ukrainian residents has been prohibited unless foreign currency is purchased to make exempt payments.
The following payments, inter alia, have been exempted from the moratorium:
Payments by the Government of Ukraine, for instance, under sovereign bonds and other state borrowings;
Transactions carried out by Ukrainian banks, including settlements under letters of credit/guarantees/counter-guarantees opened (confirmed, provided) by Ukrainian banks prior to 24 February 2022;
Transactions carried out by international financial institutions (such as EBRD, IFC, EIB, BSTDB, NEFCO, NIB, etc.) and the transfer of funds by Ukrainian residents to international financial institutions, for example payments under loan agreement with IFIs;
Settlements under sale and purchase agreements in relation to purchases by Ukrainian residents of vital import goods after 23 February 2021;
Payments under instruments secured with state guarantees;
Payments authorised under a separate permit of the National Bank of Ukraine.
Payments under Cross-Border Loans
Any payments by Ukrainian borrowers to offshore lenders under cross-border loans are prohibited unless:
The borrower is a Ukrainian bank whereas making prepayments and changing the loan maturity is not allowed;
The loan agreement is executed with an IFI as lender;
The loan agreement is secured with a state guarantee;
The borrower obtains a special NBU permit; however, currently there is no procedure for obtaining such permits.
Settlements under Export-Import Contracts
The National Bank has reduced the deadline for settlements under the export and import of goods to 90 calendar days applying to transactions carried out from 5 April 2022.
By Olexiy Soshenko, Managing Partner, and Evgeniy Vazhynskiy, Senior Associate, Redcliffe Partners