The National Bank cut Crimea from the rest of Ukraine

No more credits or deposits in rubles

Photo: Reuters

Starting from November 5 the National Bank of Ukraine (NBU) limited the possibilities of economic cooperation between residents and businesses in the mainland Ukraine and residents and businesses in Crimea. The regulator equaled Crimean residents, as well as business entities in the peninsula, to non-residents. As it was stated in the decree No. 699, adopted on Monday, from now on banking transactions with individuals and entities registered in the peninsula will be treated as transactions with non-residents and investment operations will be treated as transactions with foreign investors. Contracts concluded between legal entities in Crimea and companies registered or individuals residing in the rest of the territory of Ukraine will be treated as foreign economic agreements. Representatives of the NBU press service explained that this decision was made to secure provisions of the Law On Creation of the “Crimea” Free Economic Zone. As a reminder, the law was adopted on April 12 and came into effect on September 27. Yet the NBU notes that a number of measures may still be revised depending on the response of business. In practical terms this means that it will be possible to settle accounts under such agreement in rubles.

Lawyer at Jurimex Tetyana Prychepa explains that until to now arrangements with Crimean companies have been treated as internal, and therefore accounts had to be settled in hryvnia. As a result, companies located in mainland Ukraine and Crimean structures paid each other using accounts opened in Russian banks. The NBU changed such situation. Now Ukrainian companies will be able to settle accounts with Crimean partners in rubles.

Taken under control

Yet such innovation has a downside. Since all transactions between Ukrainian and Crimean companies became foreign trade transactions they fall under foreign exchange restrictions. Prychepa says this means that Ukrainian structures will have to file requests for purchase of currency to the banks. Financial institutions will create special accounts to which they will transfer required amounts of hryvnia sufficient for purchase of expected amounts of ruble. It will be possible to buy rubles in the T+2 mode. And in case a Ukrainian partner receives payment from a Crimean company in rubles, it will be obliged to sell the obtained funds. Moreover, the payment period of 90 days will apply to the export-import operations between Ukrainian and Crimean entities.

In case a Ukrainian parent company wants to transfer funds to its subsidiary in Crimea, for example, for replenishment of its share capital, as a loan or repayable financial assistance, it will be considered an investment, says the lawyer. And the NBU’s decree No. 699 forbids resident investments into subjects of investment activity located (registered) in Crimea. Thus, according to Prychepa, Ukrainian parent company will have to ask for the NBU’s permission every time it would like to transfer funds to its subsidiary in the peninsula.

All this is aimed at depriving Ukrainian businesses, which are unlikely to wish to pass such currency control, of any desire to resume operations with Crimea, says the lawyer.

Banking touch-me-nots

The NBU has limited the ability of Crimean residents and local businesses to cooperate with Ukrainian financial institutions. The regulator banned credit and deposit operations in Russian rubles on the mainland territory of Ukraine. From now on attracting new deposits, as well as increasing or prolonging existing deposits in rubles, is prohibited. In addition, granting new ruble loans, including overdrafts or prolonging those that have already been allocated, has also been prohibited.

As of today the share of deposits and loans in Russian currency is negligible. At the end of September, Ukrainians had only UAH 599 mn in ruble deposits and companies had the equivalent of UAH 1.742 bn in rubles. Also, the volume of ruble loans amounted to only UAH 1 mn and UAH 380 mn, respectively.

Moreover, the NBU obligated Ukrainian banks to close accounts of legal entities opened in Crimea prior to the Law On Creation of the Crimean Free Economic Zone taking effect. This means that upon the expiration of deposit periods legal entities will not be able to transfer such funds to new accounts or enjoy other services offered by banks.

There are also some restrictions for individuals. Since Crimea is now treated in banking operations as a foreign country, money transfers from mainland Ukraine to the territory of the peninsula and back will be effectuated in the same way as transfers of funds from Ukraine abroad or vice versa, in particular, if cashed money transfers from Crimea will be converted to hryvnia.