Ukrainian central bank adopts further long-awaited loosening measures (on dividends, currency conversion and cash transactions)

June 10, 2016

On June 7, 2016, the National Bank of Ukraine adopted Resolutions No. 341 and 342, which substantially softened and partly abolished the currency restrictions introduced in 2014. The regulator has made this step in response to the gradual improvement of the macroeconomic situation and stabilization of the financial market of Ukraine, in particular, an increase of export and excess supply of cash currency. The changes are aimed at the improvement of the investment image of Ukraine and should serve as a further stimulus to attract foreign investments into the country’s fragile economy. However, the National Bank is rather cautious in its approach.

 

The most essential changes can be summarized as follows:

 

Threshold for mandatory currency conversion decreased

 

The threshold for the mandatory conversion of foreign currency proceeds of Ukrainian resident business entities (received under cross-border agreements, as loans, contributions to the charter capital, investments, etc.) has been decreased from 75 to 65%.

 

Ban on dividend repatriation lifted

 

The most important change sending a positive signal to foreign investors is the abolition of the ban on dividend repatriation abroad. Herewith, Ukrainian subsidiaries will be able to disburse dividends to their non-resident shareholders. However, several restrictions will apply in order to prevent any negative impact of currency outflow on financial market:

  • only dividends accrued in 2014-2015 may be paid out;                                               

  • the monthly amount subject to repatriation is limited to USD 1,000,000 (in equivalent) or 10% of the total dividend amount to be repatriated by a resident entity, whichever is higher. If those 10% exceed USD 5,000,000 (in equivalent), the maximum monthly amount to be repatriated may not exceed that amount (in equivalent);                                                                                                                    

  • the payment of dividends would be permitted only via one servicing bank (i.e., if a company has accounts with several banks).

Furthermore, only following entities will be authorized to repatriate dividends:

  • foreign investors (via their investment accounts opened with Ukrainian banks);         

  • Ukrainian issuers of corporate rights/shares/investment certificates (Ukrainian subsidiaries of foreign shareholders) on which dividends are paid out (provided the issuer itself purchases and transfers currency abroad);                                               

  • a depository institution maintaining the securities account of a foreign investor.

 

Currency conversion rules liberalized

 

The National Bank has also eased the rules for currency conversion. In particular:

  • Banks and financial institutions conducting currency exchange transactions will be permitted to change their commercial exchange rates during a business day as well as set different rates for their branches (cash desks, points of sale, etc.) in different locations;                                                                                                         

  • Banks may use their own commercial exchange rates for cash exchange transactions of one foreign currency into another and are not bound by the official exchange rate of the National Bank of Ukraine;                                                            

  • The list of convertible foreign currencies has been extended. From now on, currencies belonging to the second group of the Currency Classification may also be converted into UAH;                                                                                                 

  • Banks/financial institutions conducting cash currency conversion transactions are no longer required to make copies of a person’s ID and keep them in their files, provided the transaction amount does not exceed UAH 150,000 (in equivalent).

 

Limits of cash currency transactions for individuals increased

 

The following upper limits of cash currency transactions of individuals have been increased:

  • The daily limit for the purchase of cash currency and bank metals – from UAH 6,000 to 12,000 (in equivalent);                                                                                       

  • The daily limit for cash currency and bank metals withdrawal from bank accounts – from UAH 50,000 to 100,000 (in equivalent);

The upper daily limit for UAH cash withdrawal from bank accounts has been completely abolished (it used to be UAH 500,000 per day).

 

Further liberalization of the financial market regulatory framework might be under way, but its implementation will depend on the overall macroeconomic and political situation in the country.

 

 

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