print
25.06.2010
Credit-Rating: Foreign Currency-Denominated Loans May Become More Affordable
Credit-Rating believes that changes in banks’ provisioning by foreign currency lending transactions considerably lower requirements and will boost lending activities of banks with foreign capital, especially considering the fact that many financial institutions (mainly subsidiaries of foreign banks) have accumulated excessive liquidity.
The Law #2275-VI of May 20, 2010 sets the ratio of provisioning at 3% for lending in foreign currency to obligors that do not have sources of receipts in foreign currency and by debts classified as ‘standard’, ‘under control’ and ‘substandard’. This is far lower than the existing rates of 50%, 100% and 100% respectively (2%, 10%, 40% as at Dec. 1, 2008).
According to Andrey Movchan, a Credit-Rating’s senior financial analyst, this legislative initiative will not prompt a significant rise of banks’ loan portfolios, and the raising up of foreign currency lending is more likely to have local nature. Today the financial institutions perform lending in a selective and cautious manner, giving loans to customers with good credit history. Many borrowers, in their turn, are more cautious with regard to currency related risks than before.
On the other hand, decrease in provisioning rate will release significant amounts of funds, which are currently ‘frozen’ in provisions, which will prompt increase in the amount of taxed profit and, consequently, additional receipts fro the budget. This, however, may also result in rise of ‘negatively classified’ debts.
Credit-Rating thinks that the change in provisioning calculating in the existing version may not become effective in case the National Bank of Ukraine initiates a new draft that will change the proposed standards and will not allow for excessive liberalization which raises potential currency-related and credit risks.
Credit-Rating agency has operated in the Ukrainian market since 2001 being committed to assignment of the national scale ratings. The agency has assigned 177 credit ratings in the financial sector and 88 bank deposit ratings. As of June 1, 2010 Credit-Rating’s rating list include 87 credit ratings in the financial sector and 54 bank deposit ratings.
Information on all credit ratings assigned in accordance with the National Rating Scale may be found inREUTERS and BLOOMBERG information systems.
For more information, please contact:
Information and
analytic department
Sergey Rozumyak +38044490 25 50
SRozumyak@credit-rating.com.ua
Denis
Rudenko
DRudenko@credit-rating.ua
