Ukraine C.Bank ups reserve terms for foreign funds

11:02, 17 July 2008
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As part of plans to reduce banks credits in foreign currency

Ukraine`s central bank on Wednesday announced plans to tighten reserve requirements for banks taking credits or deposits from non-residents as part of plans to reduce banks credits in foreign currency, according to Reuters.

The central bank said banks taking on such deposits or credits of up to 183 days` duration would from August 1 be required to meet a 20 percent obligatory reserves requirement compared to 4 percent at present.

The justice minister registered the document on July 9.

The central bank gave no explanation for the measure.

But chairman Volodymyr Stelmakh has repeatedly expressed concern at high rates of consumer credits in foreign currency on grounds that banks often raised the funds from foreign sources and this threatened the stability of the banking system.

Data published by the central bank in July put Ukraine`s foreign debt, including domestic and non-resident sources, at $92.48 billion in the first quarter of 2008 against $59.76 billion in the same period last year.

But the Association of Ukrainian banks criticised the latest move, saying it would place barriers on the raising of foreign credits.

"The new central bank rules, should they be implemented, could not only severely restrict the liquidity of the banking system, but could well suspend credits for both individuals and legal entities," it said in a statement issued on Tuesday.

Bankers say the new rules will increase the cost of borrowing and slow down economic growth.

The central bank said banks would have to open special accounts for funds in foreign currency obtained from non-residents -- to be maintained until they are paid off.

Reuters, Guardian

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