28.06.2023

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On 24 February 2022 the National Bank of Ukraine has adopted Regulation No.18 (the "Regulation") setting some restrictions to support the financial, banking and currency markets during the period of martial law.

Main restrictions applicable to business entities, as well as individual entrepreneurs, as per the Regulation (as amended) can be summarized as follows:

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• Cash transactions

• Operations on the foreign exchange market

• Purchase of foreign currency 

• Restrictions on cross-border transfers

• Credit Transactions 

• Determination of the exchange rate of currencies and bank metals

• Restrictions related to aggressor countries

• Permitted payments relating to defense capability  support

• Use of purchased currency

• Operation of bank branches

• Restrictions on settlement of securities 

• Restrictions on electronic money

• Alternative payment mechanics

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Cash transactions

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• Cash withdrawals from client accounts in local currency have been limited to UAH 100,000 per day (in Ukraine) and up to the equivalent of UAH 12,500 per every 7 days (outside of Ukraine). No limit applies, for instance, to withdrawals in Ukraine for payment of salary, social payments, withdrawals by companies and entities who ensure performance of mobilization plans (tasks), the Government, certain other state authorities, diplomatic institutions and official delegations, and withdrawals in the bank branches situated in the local communities within the area of ​​military (combat) operations, or under temporary occupation or encirclement (blockade) (hereinafter - "Dangerous Territories")[1].

• Cash withdrawals from client accounts in foreign currency (in Ukraine as well as abroad) have been limited to the equivalent of UAH 100,000 per day, subject to certain exceptions. For instance, no limit applies to  withdrawals in Ukraine by companies and entities who ensure performance of mobilization plans (tasks), withdrawals in the bank branches situated at the Dangerous Territories, withdrawals for compensation of payments for long-term business trips and payments to support the military attaches and representatives of the Ministry of Defence of Ukraine at foreign diplomatic missions of Ukraine (“Military Staff”), and other.

• Limits on cash withdrawals abroad do not apply to Military Staff.

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Operations on the foreign exchange market

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• Operation of FX market has been temporarily suspended, subject to certain exemptions. For example:

  • Clients may sell foreign currency to the banks in cash and cashless form, and to non-banking institutions and the post operator - in cash.

  • In addition, bank customers can buy bank metals (with physical delivery) in the bank branches (subject to some restrictions).

  • Apart from that the banks may carry out swap transactions with other banks, as well as trade currency values with foreign financial institutions / NBU / IFOs[2].

  • The banks are allowed to carry out swap transactions with foreign depository bank that has a securities account with the NBU, for purchase and sale of foreign currency, if the first part of the transaction involves the sale of foreign currency by a bank to a foreign depository bank that has a securities account with the NBU.

  • Banks may carry out swap transactions with their resident clients, for purchase and sale of foreign currency, if the first part of the transactions involves the bank's purchase of foreign currency from the client, as well as for currency exchange within the 1st group of the Classifier. Such operations are carried out at the exchange rate specified in the money market derivative contract concluded between the bank and its client.

  • Purchase of foreign currency permitted to ensure compensations during long-term business trips and activities of Military Staff, as well as the purchase of foreign currency by the Financial Department of the General Staff of the Armed Forces of Ukraine to ensure the activities of the Armed Forces of Ukraine. In addition, Ukrainian business entities can purchase foreign currency to cover the costs of travel of employees abroad exclusively for the payment of daily allowance in the amount not exceeding EUR 80, accommodation and transportation expenses (with documentary confirmation of the calculation of the specified expenses per person).

  • Purchase of foreign currency by a resident is permitted to cover a letter of credit opened by the issuing bank in favor of a non-resident with respect to import operations, if the supply of goods under such operations is being carried out after 23 February 2021 (subject to the Resolution of the Cabinet of Ministers of Ukraine “On certain issues related to ensuring import” No.153 dated 24 February 2022).

  • The banks may also carry out FX operations (with most of hard currencies) and purchase foreign currency for further carrying out by the client of operations which are permitted according to the Regulation, subject to certain exceptions.

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• The NBU permitted bank clients to purchase foreign currency on a forward basis under forward agreements concluded before 23 February 2022 (inclusive). The purchased currency must be further used by the client for operations permitted by the Resolution.

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Purchase of foreign currency 
 

• The NBU prohibited banks from buying foreign currency on behalf of resident clients (except natural persons) who already have funds in foreign currencies deposited to current and deposit accounts. It is important to note that the funds deposited in all banks are to be accounted for.Obligations in foreign currency must first be fulfilled by such resident clients at the expense of funds in foreign currency already available to them.
  This restriction does not apply in the following cases:

  • if the total amount of funds in foreign currencies deposited on the client's current and deposit accounts on the date of purchase of foreign currency less than the equivalent of UAH 400,000 (according to the official exchange rate of the Hryvnia to the relevant foreign currencies);

  • under the second part of the currency swap transaction under which the bank carries out the reverse sale of foreign currency to the client.

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• To purchase foreign currency, the resident client has to confirm to the bank absence of foreign currency or provide information about the total amount of funds in foreign currency deposited to its accounts, as well as information on whether the any exceptions may be applied.
  At the same time, some funds in foreign currencies shall not be included in the total amount of funds, for example:

  • on the client's accounts, property rights to which had been pledged to the bank in accordance with a pledge agreement before 6 September 2022;

  • that had been deposited to deposit accounts before 6 September 2022 inclusive;

  • deposited to accounts in a bank classified as insolvent, in respect of which the procedure of temporary administration has been introduced or in respect of which liquidation procedure is being carried out;

  • that were purchased by the client and deposited to his account, but not used within the period established by the legislation of Ukraine;

  • on the client's accounts, if these funds are used for transfer exclusively together with the purchased foreign currency for the purpose of fulfilling the obligations whereunder the purchase of foreign currency is allowed;

  • received to the client's account under loan agreements with the Ministry of Finance of Ukraine/IFOs (provided there is an obligation to use the loan funds for certain purpose);

  • on the client's accounts which have been seized;

  • on the account of the client-intermediary, received by him under commission contracts, mandates, consignments, agency agreements, and subject to further transfer to the owners of these funds;

  • that are deposited to the client's accounts as monetary security for auctions/biddings/tenders;

  • on the client's accounts which represent insurance reserves;

  • received to the client's account under projects (programs) of international technical assistance, which have passed state registration, and must be used in accordance with the goals determined by such a project (program);

  • in russian rubles and belarus rubles;

  • on the client's accounts if such funds are used for transfers pursuant to special permits (decisions) of the NBU;

  • funds which have been purchased for the purpose of covering travel expenses outside Ukraine, in compliance with the requirements specified in the Regulation;

  • on the account of a resident client, which is opened exclusively for the purpose of fulfilling the conditions of a loan agreement/credit agreement concluded between this resident as a borrower and international financial institution, to maintain on such an account a certain amount of funds in foreign currency (the so-called DSRA accounts).

 

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Restrictions on cross-border transfers

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• Moratorium on cross-border transfers from Ukraine has been introduced with certain exceptions, which include:

  • banks' own operations (but settlements under documentary and stand-by letters of credit / guarantees / counter-guarantees, opened (confirmed, issued) from 24 February 2022 have been significantly restricted, with some exceptions),

  • payments by residents for import of goods which are stipulated by the Resolution of the Cabinet of Ministers of Ukraine “On certain issues related to ensuring import” No.153 dated 24 February 2022  (provided that the supply of goods takes place after 23 February 2021),

  • performance of obligations secured by the state guarantee,

  • payments of and to IFOs,

  • transactions of residents and non-residents relating to performance of mobilization plans (needs),

  • payments for medical services abroad as well as related transportation and repatriation (including related payments of insurers),

  • payments for education abroad,

  • payments of alimony,

  • payments based on special permits of the NBU (at the request of the Cabinet of Ministers of Ukraine),

  • payments to diplomatic missions and consulates for their maintenance and performance of representative functions,

  • using electronic payment means (e.g. cards/tokens) abroad for payments for goods, works and services is possible in the amount of up to UAH 100,000 per calendar month from local currency accounts, and without limits - from foreign currency accounts.,

  • p2p transfers between individuals, on their foreign currency bank cards, have been limited to the equivalent of UAH 100,000 per month, and on local currency cards – prohibited (since 5 October 2022). Quasi-cash transactions (purchase of cryptocurrency, replenishment of e-wallet / brokerage / forex accounts, cashing of traveler’s checks / payments to betting companies, purchase of gift cards etc.) may be carried out within the same limit, but only out of the funds available at foreign currency accounts,

  • payments to foreign branches of state-owned (except Russian / Belarus) companies in accordance with their budgets;

  • payments for certain import of goods by individuals (mostly, volunteers) aimed at increasing defensive capacity of the country, in the amount not exceeding UAH 400,000 per month,

  • certain payments of insurers in favour of foreign reinsurers, in particular, pursuant to agreements concluded from 24 February 2022 till 31 May 2022 which cover war related risks (mind additional requirements applicable to the insurers and reinsurers);

  • transfers of critical payment infrastructure operators to foreign entities to ensure stability of card payments,

  • leasing and renting vehicles.,

  • settlements under the projects/programs of international technical assistance/cross-border cooperation financed by the European Union,

  • certain types of credit transactions (see the "Credit Transactions" section below), 

  • transactions related to the trials at the International Commercial Arbitration Court and the Maritime Arbitration Commission at the Chamber of Commerce and Industry of Ukraine,

  • transfer of funds by a resident legal entity to the accounts of its own branches, representative offices and other separate divisions without incorporation of a foreign legal entity (subject to compliance with a number of conditions, for example, that transfer can be made during the current calendar year within the limits of the total amount of funds transferred by this resident legal entity during 2021 for the maintenance of its branches, representative offices and other separate divisions without incorporating a foreign legal entity, which is confirmed by a resident legal entity in documents, but not more than 1/4 of this amount within one calendar month),

  • transfer of funds by a resident commission agent / commercial agent (subagent) / attorney to the account of a non-resident principal received from sale since 24 February 2022 of the services/works specified in Resolution No. 153;

  • transfers of funds in hryvnias to the correspondent account of a foreign depository bank that has a securities account with the NBU, for the purpose of fulfilling the obligations of a non-resident under securities issued abroad, the underlying asset of which are domestic government bonds of Ukraine, for payment of income and other funds to the owners of such securities, as well as for carrying out other transactions specified in paragraph 138 of Section XI of the Regulations on Measures of Protection and Determination of the Procedure for Carrying Out Certain Operations in Foreign Currency, approved by NBU Resolution No. 5 dated January 2, 2019;

  • transfers of funds in accordance with the Convention on Mutual Administrative Assistance in Tax Matters for the collection of tax arrears in international legal relations at the request of the competent authority of a foreign state;

  • transfers by representative offices to accounts of non-resident legal entities engaged in entrepreneurial activity on the territory of Ukraine through such representative offices, if such transfers are made in foreign currency received from transactions for the purchase and sale of goods in Ukraine, which are paid for by funds of IFOs.

  • transfers by resident borrowers abroad of funds to fulfil obligations under external credits and loans, which are secured by a guarantee or surety of an international financial organization (according to NBU Resolution No. 73 dated 15.06.2023); 

  • transfers of resident borrowers abroad of funds to fulfil obligations under external credits and loans granted with the participation of a foreign export credit agency or a foreign state through an institution authorized by it or through a foreign legal entity whose shareholders include a foreign state or a foreign state bank (according to NBU Resolution No. 73 dated 15 June 2023).

On specifics of payments under contracts please see section Payments under contracts. 

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Credit Transactions 

NBU currently permits carrying out the following types of loan operations:

• transfers by resident borrowers abroad of funds to fulfil obligations under cross-border credits and loans, which are: 

  • provided with the participation of IFOs (by way of a guarantee or suretyship); 

  • provided with the participation (by way of lending, insurance, guarantee or suretyship) of a foreign export credit agency or a foreign state through an institution authorized by it or through a foreign legal entity which has among its participants  a foreign state or a foreign bank (provided that the foreign state is a participant (shareholder) of such bank); 

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• transfers by resident borrowers abroad of funds to fulfil obligations under cross-border  credits and loans, subject to certain restrictions:

  • a loan has been credited to the borrower’s bank account at a Ukrainian bank after 20 June 2023;

  • interest payments (including fees, charges and other payables) shall not exceed 12% per annum;

  • for a loan with a tenor of up to three years, transfer of funds by a borrower to repay principal, interest and other amounts payable may be made solely out of its own  foreign currency funds. This means that these provisions are mainly aimed at the borrowers who export goods.

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Additionally, the NBU encourages the attraction of long-term financing, particularly: 

• for a loan with a tenor of more than three years, a borrower may purchase foreign currency during the first three years from the date of initial receipt of the loan principal in order- to pay interest, default interest, fees and charges, and starting from the fourth anniversary – in order to repay the principal too . 

• prepayment of cross-border loans is still not permitted except in cases where loan or a portion thereof have been extended, guaranteed, insured or otherwise covered by the IFOs or foreign export credit agencies or other financial institutions whose shareholders include any foreign state or a development bank which, in turn, is fully or partially owned by foreign state. An additional requirement is that all transactions/payments/settlements (including the provision/receipt/repayment of any portion of the credit/loan) under such agreement are conducted exclusively after 20 June 2023.

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Under all other cross-border loans FX transfers are permitted for the purpose of paying interest accrued on such loans, butwith certain restrictions as to the amount, as well as subject to compliance with a number of other conditions, for example, that the due date of payment of such interest payments must fall within the period from 24 February 2022 to 10 August 2022 (inclusive). 

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·As for the own operations of the banks,  early repayment of credits and loans by the borrower banks under agreements with non-residents (including interest and other payments under such agreements), as well as making respective changes to such agreements, is prohibited. Ukrainian banks are prohibited from lending to non-residents, except to financial institutions. The NBU has also prohibited the banks to restructure debts under loan agreements concluded with their client borrowers (except banks) by changing the currency of the obligation from foreign currency to Hryvnia, but the prohibition does not apply to certain consumer loans granted in foreign currency (see criteria in Clause 7 of Chapter IV of the Law of Ukraine "On Consumer Lending"). In addition, the banks may not provide loans in the local currency to their clients for the purpose of repayment by the borrowers of bank loans granted in foreign currency (including interest and other payments under the loan agreement in foreign currency).

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Determination of the exchange rate of currencies and bank metals
 

• Starting 03 October 2023, the NBU has transitioned to a regime of managed exchange rate flexibility. Henceforth, similar to the period before 24 February 2022, the official exchange rate will be determined based on the results of trading sessions in the interbank market, rather than being set directive, as was the case for over 17 months (24 February 2022, to 02 October 2023). The price of bank metals is calculated based on the cross-rate to the US dollar. Banks will independently determine the buying and selling rates of foreign currency.
   

• It is important to note that this regime does not signify an irreversible return to a floating exchange rate system. According to the words of NBU Governor Andriy Pyshny, an irreversible return is not currently being considered. Instead, the emphasis was on achieving a structural milestone as outlined in the memorandum submitted by the Government of Ukraine to participate in the IMF program. Since the NBU has previously intervened in currency trading, there seems to be no fundamental difference in the mechanism between October 2023 and, let's say, October 2020.

 

Restrictions related to aggressor countries

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• Prohibition of withdrawals from accounts of Russian / Belarus residents held in Ukraine, or accounts of legal entities (except banks) in which residents of Russia / Belarus are the ultimate beneficial owners. This restriction does not apply to the transfer of funds from such accounts within Ukraine:

  • to a special account of the NBU to raise funds to support the Armed Forces of Ukraine and / or to the accounts of the Government, ministries and other state authorities of Ukraine,

  • for social payments, salaries, utilities, taxes, duties and other mandatory payments,

  • for sale of foreign currency, except Belarus rubles (BYN) and Russian rubles (RUB),

  • for payment of bank fees and performance of obligations under loan agreements with the bank,

  • as transfers within the client’s current accounts in one bank and between Ukrainian banks except BYN/RUB),

  • for insurance payments to health care institutions and reimbursements under insurance cases which occurred before 24 February 2022, and mandatory vehicle insurance contributions.

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The State Security Service may, by its special permission, approve the withdrawal of funds from the accounts of such persons.

• Prohibition of any payments in BYN/RUB, and any operations involving residents of Russia and Belarus. No payments can be done in performance of obligations towards the residents of such countries. These restrictions do not apply to transfer of funds (except for BYN/RUB) to special government accounts to raise funds to support the army, to residents' bank accounts for exports of goods, refunds for imports of goods, for social payments, salaries, utilities, taxes, duties and other mandatory payments, bank fees, within such resident’s current/deposit/escrow accounts, as well as repayment of loans to banks in Ukraine. Such residents are allowed to sell foreign currency in cashless form (except for BYN/RUB). Funds in any currency may be credited to local banks correspondent accounts in Ukraine.

• Certain restrictions have been imposed on payment systems operating in Russia and Belarus, in particular, no cards/tokens (electronic payment means) issued by the participants of such international card payment systems may be accepted in Ukraine and no funds may be credited to the accounts of Ukrainian residents from such cards/tokens.

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Permitted payments relating to defense capability  support

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• The Resolution allows to transfer funds in foreign currency, on the territory of Ukraine and abroad, to a special account of the NBU to raise funds to support the Armed Forces of Ukraine and / or to the accounts of the Government, ministries and other state authorities of Ukraine, charitable foundations aiming to support the defense capability and mobilization readiness of the country, support the armed forces and territorial defense, foster social protection, health care and other urgent issues of protection of the population under the martial law.

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Use of purchased currency

• According to the changes introduced by Resolution No. 142 of 7 July 2022, the resident client is obliged to utilize the foreign currency, which has been purchased in accordance with the established procedure through the bank starting from 11 July 2022, within two working days after the day it was credited to the client’s current account for the purposes indicated in the application for the purchase of foreign currency (with certain exceptions, in particular, in case separate permission of the NBU was obtained).
   

Operation of bank branches

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• The NBU has also ordered that commercial banks operate their branches and replenish cash in ATMs in usual mode. No limitations apply to cashless payments.

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Restrictions on settlement of securities 
 

• Banks are prohibited from disposing of foreign securities and/or taking other actions that could result in the transfer of foreign securities to the residents and non-residents. However, the trading restriction does not apply to the sale and purchase of foreign securities between banks and non-residents under conditions that the settlements between the parties are provided for in monetary form and carried out either through foreign accounts and/or by making cross-border transfers.

• Banks are permitted to carry out monetary settlements with non-residents under such transactions in foreign currency only.

 

Restrictions on electronic money

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• Emission / circulation of e-money and replenishment of e-wallets by the banks temporarily suspended.

 

Alternative payment mechanics

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• Under the current restrictions, one of potential alternative payment methods may be the use of cryptocurrency (within the limits set by the NBU). It should be noted that the legal basis for the circulation of cryptocurrencies in Ukraine was stipulated in the draft law №3637 "On Virtual Assets", which was signed by the President on 15 March 2022. The Draft bill shall enter into force once the Tax Code of Ukraine is amended to provide for peculiarities of taxation of transactions with virtual assets (respective draft bill is currently under consideration by the Parliament).
  Other alternative payment methods depend on particular circumstances and can be analyzed upon request.

 

 

[1] See Order of the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine No. 75 dated 25 April 2022 "On Approval of the List of Territorial Communities Located in the Area of ​​Military (Combat) Operations or Under Temporary Occupation, Encirclement (Blocking) as of June 29, 2022 » - https://zakon.rada.gov.ua/laws/show/z0453-22#n4.

[2] IFO (International Financial Organization) - international financial organizations in which Ukraine is a member, and international financial organizations under the agreements with which Ukraine has committed itself to ensuring the legal regime granted to others international financial organizations.