NBU underlines need to restore trust between borrowers and lenders

There are gaps and loopholes in the Ukrainian laws, which are used by unscrupulous borrowers who turn them into quasi-legal schemes so as not to repay their debts to creditors and get away with delinquent debt settlement, the NBU stressed.

The lenders' rights are limited when it comes to bankruptcy proceedings. Suretyship arrangements are not efficient and banks risk losing the mortgaged property in the event of unauthorized construction, the NBU said in its statement.

Additionally, when it comes to handling inheritance cases, debt collection procedures are partly covered by the existing legal framework. 

"All these shortcomings of the existing legal framework do not make lenders feel secure in regard to the repayment of loans, and discourage them from lending again. High risks of default on loans make banking institutions scale down extensive lending programs and conduct business only with credible clients. Some banks are limited to performing only servicing operations for clients, notably, the execution of funds transfers," said Director of the NBU Legal Department,  Oleh Zamorskyi.

"Draft law No. 2286-а is aimed to address gaps in the law, which have been earlier used by borrowers to avoid fulfilling their debt obligations," he said. 

According to Zamorskyi, protection of the creditors' rights will help mitigate risks at all stages of the lending process: loan disbursement, loan servicing and repayment.

"We also expect nonperforming loans and distressed debts to decrease in the future once this draft law is passed. If creditors have their rights legally protected, they will be able to ease lending conditions for potential borrowers. The move will help boost lending, cut borrowing costs, thus making banking products lending more accessible and affordable for businesses and individuals," Zamorskyi said.