New Foreign Currency Restrictions Imposed on Ukrainian Importers

Over the last year Ukraine has experienced continuing downward pressure on its national currency, the Hryvnia, resulting from the ongoing military intervention in the Eastern regions. To stabilise the situation the National Bank of Ukraine (the "NBU") continues to take restrictive measures. On 23 February 2015, the NBU issued Regulation No. 124 "On Peculiarities of Certain Foreign Currency Transactions" (the "Regulation"), as amended on 24 February 2015. The Regulation came into force on 24 February 2015. The Regulation envisages strengthening control over foreign currency transactions carried out by importers under foreign economic contracts that provide for advance payments. The NBU expects the Regulation to prevent capital outflow from Ukraine and thus decrease the pressure on the Ukrainian foreign exchange market.

The Regulation has a direct and immediate impact on Ukrainian importers, as well as enterprises that use imported goods for production purposes. The restrictions affect the companies’ ability to fulfil their payment obligations towards foreign counterparties under import contracts and thus may lead to disruptions in delivery schedules and decrease the scope of supplies and hence production. Consequently, it is likely to lead to additional expenses for businesses, including due to the daily growth of the FX rate, as well as possible contractual penalties for importers. It may also result in the need to renegotiate contracts.

Under the Regulation:

1. Without confirmation (consent) from the NBU, authorised banks are prohibited from carrying out advance payments in foreign currency for the import of goods under foreign economic contracts ("Advance Payments"), if the total value of such contract exceeds USD 50,000 (or the equivalent thereof in another foreign currency at the official exchange rate of Ukrainian Hryvnia to the foreign currencies, set by the NBU on the date of such contract). Authorised banks shall generate a register of the requested Advance Payments (the "Register") in order for the NBU to confirm them. The Register shall be submitted to the NBU by email together with scanned copies of the documents serving as a basis for the Advance Payments. Authorised banks may carry out those Advance Payments confirmed by the NBU not earlier than on the fourth business day from the day the Register was submitted to the NBU.

2. No NBU confirmation is required if an Advance Payment (irrespective of the total amount of a contract) is to be made using a documentary letter of credit. The letter of credit shall be confirmed by a first rate bank with a rate no lower than the investment rate, assigned by one of the major credit rating agencies (Fitch IBCA, Standard & Poor’s, Moody’s). The letters of credit should be mandatorily used in relation to Advance Payments under foreign economic contracts which exceed the value of USD 500,000. The foreign currency may be purchased only for the purpose of securing the letter of credit.
If no total value of a contract is set therein or with respect to existing contracts, the above limits shall apply in relation to Advance Payments to be made after the effective date of the Regulation.

3. Authorised banks are prohibited from purchasing foreign currency on a client’s instructions using UAH funds borrowed by the client.

The Regulation does not provide for any period of its validity, thus will apply until it is cancelled by the NBU.

Legislation: NBU Regulation “On Peculiarities of Certain Foreign Currency Transactions” No. 124 dated 23 February 2015