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Top-Events of the Ending Year in Banking Sector


Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm

Source: Ekonomichna Pradva

The scope of “bankfall” diminished in 2016. Nevertheless, two events became the most notable: bankruptcy of “Mykhailivsky” Bank and nationalization of Privatbank.

2016 shall be remembered for its several significant events if banking and financial legal sector.

1. Adoption and enactment of the Law “On Financial Restructuring” as of June 14, 2016.

This long-awaited law implements a special procedure for voluntary financial restructuring of corporate debtors. It is aimed at overcoming the crisis occurred lately.

In contrast to common bankruptcy this procedure is based on the agreement between debtor and engaged creditors, and the evolving disputes are settled in accordance with special arbitration rules.

In fact, this refers to an alternative procedure of debtor’s treatment prior to initiating bankruptcy proceedings. For debtor the commencement of financial restructuring procedures means the opportunities to achieve the suspension of court proceedings in bankruptcy case when the bankruptcy application has already been filed.

The specified law shall be valid for three years from the date of entry into effect. It provides for measuring the success of financial restructuring procedures in Ukraine and comparing the results with other countries’ experience.

2. “Mykhailivsky” Bank bankruptcy and legislative solution to issues with its depositors.

In 2016 the scope of “bankfall” decreased in comparison to two previous years, but two events proved to be nearly the most high-profile: bankruptcy of “Mykhailivsky” Bank and nationalization of Privatbank.

The problem with the deceived depositors of “Mykhailivsky” resided in the fact that they had not brought their money directly to the Bank, but concluded loan agreements with non-bank financial institutions controlling the Bank. It appeared to be a trivial pyramid scheme.

Therefore, the depositors could not be eligible for guaranteed reimbursement of their contributions.

The issue has been resolved with the adoption in record-breaking time of the Law “On Amendment of Certain Laws Regarding the Reimbursement to Individuals via Deposit Guarantee System for Damages caused by the Abuse in the Field of Banking and other Financial Services” dated November 15, 2016.

This law provided for equal rights of banks depositors and customers of non-bank financial institutions who obtained funds through the falling bank. These both categories received the opportunity to claim the reimbursement of their deposits from Individual Deposit Guarantee Fund in the amount of up to 200 thousand UAH.

The abovementioned law was widely criticized by the experts. They reasonably noticed that as of now the customers of non-bank financial institutions, who had never participated in the establishment of the Fund’s resource base, shall claim the reimbursement at the expense of banks’ contributions.

3. Privatbank nationalization and strengthening of the security of national banks depositors.

Persistent rumors, circulating for a long time, eventually became true in the end of 2016: the state purchased 100% of shares of the largest commercial bank of Ukraine for symbolical 1 UAH.

Privatbank nationalization related to the failure to complete the institution’s capitalization plan by its share holders. They submitted a letter to the Cabinet of Ministers requesting the state to access the banks capital.

Temporary administration at the bank had been introduced only for two days, and as late as December 21, 2016, the country became its sole possessor. Therewith, the interests of ordinary Privarbank clients, holding their deposits and current accounts there, not only have not been affected, but also obtained additional protection.

The Draft Law №5553 as of December 19, 2016, on amendments to the Law “On Banks and Banking Activities” regarding the individuals deposits guarantee by the state, being adopted by the Parliament in record breaking time, envisaged that the state shall reimburse the individuals’ deposits to public banks in the amount exceeding the limits for reimbursements by Individual Deposit Guarantee Fund.

Investors, who previously bought the Bank’s Eurobonds issued by the British company under the English law, appeared to be the most affected by Privatbank nationalization.

The corresponding obligations fell under bail-in procedure. Holders of these Eurobonds will likely receive nothing.

4. Adoption of the Law “On Consumer Crediting” dated November 15, 2016.

The adoption of new law, which shall come into effect on June 20, 2017, shall provide for the protection of consumers’ and creditor’s interests in the field of consumer crediting.

In is extremely important to solve a lot of issues reflected in this law. Among these are: the promotion of consumer credits, additional services provided by the Bank, creditor’s demand on early loan repayment, required evaluation of the borrower’s status by the creditor.

Despite the lowering scope of consumer credits issued by banks within the last two years, this market segment possesses a significant potential for the development, and the new law shall form the legal basis for its implementation.


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