Auditors to study efficiency of Ukrainian banks' debt restructuring policy, says IMF

The large share of accumulated bad debts of Ukrainian banks and a large risk of their expansion require the study of the problem with the involvement of auditing firms and the search for legislative and other solutions to have effective debt restructuring, according to the materials of the Stand-By Arrangement of the International Monetary Fund (IMF) approved for Ukraine.

"As part of the diagnostic studies, we will ask the auditing firms to assess the quality of debt restructuring policies and procedures to ensure effective debt restructuring, including write-off and transfer of NPLs [non-performing loans]. The auditing firms’ reports will be completed by end-September 2014," reads the document.

By end-September 2014 the National Bank of Ukraine (NBU) will study the readiness of banks to efficiently operation with troubled borrowers, limiting moral risks.

Ukrainian authorities on identifying legal impediments for effective out-of court debt resolution.

"To this end, with technical assistance from the IMF by end-October 2014 we will review the current legal framework for NPLs resolution and identify existing legal, regulatory, and tax obstacles to effective debt restructuring," reads the document.

According to the materials, by late March 2014, the share of NPL was 13.3% of all credits, and their reservation was 80%. The IMF said that the NBU does not include substandard loans, a large part of which was restructured or prolonged. Taking them into account, the share of NPL will grow to 23%.

From December 2012, the NBU has changed methods for the classification of NPL, and the share was reduced, and as of late March 2014, the real share of NPL reached 27.1%.

The IMF said that the large hryvnia devaluation and recession could worsen the indicator. However, it is expected that by end-June, the share of NPL will grow to only 27.2% and by September it will be cut to 25.6% and to 23.5% by late 2014.

The reserves for NPL in the second quarter of 2014 will slightly fell from 12.4% of all loans to 11.8%, and in the third quarter of 2014 it will grow to 14.9%, and in the next two quarters it will stabilize at 13.6-13.8%.