Hush payment: Ukrainian banks are on the verge of a loan crisis. Refugees are unable to pay, financial institutions are not ready to compromise

Banks turn a blind eye to problems with loan portfolios to save shareholders' money. To recognize them now means to force the owners to invest money in covering losses during the war. This is most clearly seen in the case of personal loans, disastrous non-payment on which banks prefer to "ignore". Although, lawyers say, at least 30% of internally displaced persons have problems with repayment of debts to monetary institutions, in particular on ordinary consumer loans. We are talking about several million citizens who are now unable to repay their loans for objective reasons. Mind studied both facets of the problem, talking to both banks and borrowers, and tried to find out how it can be solved.

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Have there been any attempts to regulate the easing of requirements for borrowers? The first steps to support the system of mass lending were determined by the law No. 2120-IX "On Amendments to the Tax Code of Ukraine and other legislative acts of Ukraine regarding the validity of norms for the period of martial law." The purpose of the law was an attempt to facilitate the situation for Ukrainian borrowers during the war and post-war economic recovery.

"To this end, the new law stipulates that for the duration of martial law and within 30 days after its termination or cancellation, the consumer will not be liable to the lender in case of delay in fulfilling obligations under a consumer loan.  Moreover, in the case of such delay, the consumer is exempted, in particular, from the obligation to pay the lender a forfeit (fine, penalty) and other payments, the payment of which is provided for by the consumer loan agreement for delayed performance (non-performance, partial performance) of liabilities by the consumer," the National Bank pointed out.

Did banks introduce loan repayment holidays for their individual clients? In April 2022, the NBU recommended banks to provide borrowers with loan repayment holidays. "Such steps (holidays) on the part of financial institutions will enable citizens who found themselves in a predicament now to temporarily not service loans and return them when possible," the National Bank said in a letter.

How do banks deal with bad debts of citizens now? Each bank restructures loans of individuals (including IDPs) at its own discretion and applies its own criteria to organise them. For this reason, the information received from banks on this topic is highly variable

For example, OTP Bank told Mind that since the beginning of the war it has settled almost 40,000 transactions worth about UAH 1.5 billion. "All displaced persons can receive either a deferral or a decrease of the loan payment, but the bank may ask to specify one's current financial capabilities," the bank said.

By contrast, Oshchadbank has conducted only... 800 restructurings. "The current restructuring programs are based on an individual approach for each borrower, considering the reasons for financial difficulties and the possibility of choosing a convenient way for the client to apply for restructuring to the bank," the Oshchad said. 

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Are there any "special conditions" for IDPs? Almost 30% of customers who contacted the bank had moved within Ukraine or abroad, told Mind Volodymyr Ponomariov, director of Ukrgasbank's risk management department. "We offer short-term, i.e. up to 12 months, changes to loan agreements – extending the term of loan agreements, establishing an individual repayment schedule, granting a deferral in paying the principal and interest – a repayment holiday. It is worth noting that the repayment holidays are granted for a maximum period of three months. Thanks to such instruments, our bank restructured almost 10% of the retail loan portfolio," says Ponomariov.

Unex Bank does not keep specific statistics on IDPs. "However, all IDPs, without exception, who applied to the bank for debt restructuring, were offered various programmes and preferential terms decreasing both the amount of monthly payment and the interest rate," says Yuriy Melnychuk, Director of the Risk Department of the bank.

Vasyl Furman, member of the NBU Council, reminds that although the legislation of Ukraine does not provide for easing the terms of loan agreements for IDPs, a number of rules for banks and non-bank fiscal institutions, including those that provide lending services, have been changed. "Fines, penalties and other payments, which are provided for by the consumer loan agreement and accrued after February 24, 2022 for late performance (non-performance, partial performance) under such an agreement, are to be written off. That is, there are mandatory loan payments, but in case of delay, fines, penalties and other payments are not charged," he said.

Loans to individuals, billions UAH

Bank	02/01/2022		02/10/2022		Rate
	Volume	Share	Volume	Share	%
	personal loans (with interest, no loan loss provisions)
All the banks	243	100	231	100	-4.8
PRIVATBANK	62	25.5	65	28	4.7
ALFA BANK	32	13.2	31	13.4	-3.4
UNIVERSAL BANK	26	10.8	25	10.7	-5.7
FUIB	22	9.1	21	9	-5.7
OSHCHADBANK	17	6.9	16	7.1	-0.9
А – BANK	9	3.8	9	3.9	-2.6
OTP BANK	11	4.5	9	3.9	-19.1
Idea Bank	9	3.5	9	3.7	0.2
Reiffaisen Bank Aval	8	3.4	7	3.2	-8.4
CREDOBANK	8	3.4	7	3.1	-15.2
Ukrgasbank	6	2.7	6	2.7	-4.6
UkrSibBank	7	2.9	6	2.4	-20.9
CREDIT AGRICOLE BANK	6	2.5	5	2	-21.1
TASCOMBANK	4	1.7	4	1.8	0.8
FORWARD BANK	2	0.7	2	0.8	3.3
Ukreximbank	1	0.6	2	0.7	17
PRAVEX-BANK	2	0.7	2	0.7	-7
Globus Bank	2	0.7	1	0.6	-15
CREDIT DNIPRO BANK	1	0.5	1	0.6	6.1
Bank Lviv	0,.4	0.2	0,.4	0.2	-2.9

Source: National Bank

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For example, Inna Zviagintseva now lives in Austria as a refugee and says that monobank charged her full interest for January and February plus 7000 UAH of debt. "Then they promised that they would charge reduced interest. And although the wording says 'until the end of martial law", in fact, they have been charging full interest since August," she says.

Clients of other institutions also complain about similar situations. "FUIB says that their payment break ended for everyone in the summer, and it is normal to pay 6000 [UAH] per month. They do not respond to any requests for restructuring. It's a grievance for me as a client with eight years of experience, to be honest," complains Yaroslava, an IDP.

"Alfa-Bank also charges me fines on my credit card. And gives 'advice': negotiate with your landlord not to pay him, but to pay us," says Tetiana Mitina, a client of the bank.

There are even stories when banks did not provide restructuring, but on the contrary, are trying to collect debts even from families who were displaced from Mariupol, Skadovsk, Melitopol, ruined districts of Kharkiv, etc. That is, from those who have nothing left at all. And in some cases, banks even asked customers to pay more immediately after the end of the loan repayment holidays to cover the shortfall.

What do lawyers say? "The current legislation does not provide any benefits to IDPs and persons who lost their homes due to russian aggression. The Verkhovna Rada has not yet discussed this issue, and the NBU has not initiated it either," says lawyer Rostyslav Kravets.

Lawyer Kateryna Gutharz says that the war is a force majeure, but in the case when it directly affects the inability of the party to fulfil his/her obligations. "For example, the debtor stays in the occupied territory or in the territory where hostilities are ongoing, and is physically unable to fulfil the obligations under the contract," the lawyer says. According to her, "force majeure does not exempt from the obligation to perform, but only gives a delay for the duration of force majeure and exempts from liability for delay (fine, penalty...)," Gutharz said.

What do lawyers advise borrowers to do? "First of all, you should contact the lender and explain the situation. This does not mean that the lender will certainly forgive the debt, so you still have to pay the loan. But the repayment schedule, and therefore the monthly amount, can be very significantly discounted. So that a person can still pay on the loan", says Yuriy Melnychuk, Director of the Risk Department at Unex Bank.

Rostyslav Kravets explains that in case of failure to repay the loan, you should first of all find out about the existing bank's programmes on delays and possible restructuring. "After that, it is desirable to assess your chances for performing the proposed debt repayment schedules realistically. If it is possible to execute them, you may sign the relevant additional agreements. If implementing the proposed programmes is not possible, you have to offer your own vision with a clear schedule of debt repayment," says Kravets.

In his words, until the very written arrangement is reached of a supplementary agreement with a schedule that is suitable for the borrower, it is not recommended to repay the debt, because this leads only to its increase. "The amounts that are paid during this period not in full are directed to repay penalties and fines, not the loan", the lawyer said.

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How does the banking system in general feel in this situation? At first glance, the good news is the profitable performance of banks. PrivatBank reported almost UAH 14 billion in profit for eight months of 2022, Universal Bank (monobank) showed UAH 0.65 billion in profit for this period.

"Privat and monobank are among the three largest personal lending banks. That is, for eight months of war they almost did not feel the impact of their customers' hardships and destruction of the Ukrainian economy. Perhaps, due to their profitable operations, the banks have not yet developed a unified approach to loan restructuring.

What should be the unified approach to restructuring and why has it not been elaborated yet? It should be the result of joint work of the National Bank and the Tax Service. Unfortunately, the policy of the latter does not encourage banks to write off bad loans, because the tax authorities consider such write-offs as profits of the bank, even if the pledged property was destroyed in Mariupol. The second issue is that bank shareholders themselves do not want to recapitalise their institutions in hard times. Therefore, banks prefer to "ignore" the real situation with loans.

Financiers expect that the real picture will be revealed by the results of the annual audited accounts, and it will reveal all the losses of the system. "Banks will need to meet their customers and carry out restructuring and write-offs now. We do not see this so far, but we should wait for the results of 2022",  concludes Olena Domuz, a financial expert.

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