PwC Podcast: Ukraine’s news ad hoc #1. Currency regulation during martial law

Everyone is fond of cash, particularly in a foreign currency. In times of turbulence, financial and currency matters are of great interest to ordinary people and businesses alike. Can you please tell us more about regulatory changes in this area during the war? What specific rules and restrictions were imposed by the National Bank of Ukraine?

Vadym: Thank you. This matter has indeed remained relevant throughout Ukraine's independence. I would like to give credit to our government and the National Bank of Ukraine, in particular, for the fact that now, considering the experience of 2014, the NBU is able to take adequate protective measures to ensure stability of the financial system and equilibrium of Ukraine’s balance of payments. In my opinion, under the unprecedented circumstances Ukraine is now facing, the NBU’s policy is quite balanced.

Regarding the military regulation, I would highlight three key points to understand:

First. The official UAH to USD exchange rate has been fixed at the level of 24 February 2022 at UAH 29.25 per USD 1. This UAH to USD exchange rate is used as a basis to arrive at exchange rates for all other currencies. It is hard to predict what the real exchange rate would be like had the NBU not taken this step. It is entirely possible that we could be seeing a situation similar to Russia, where the rouble took the plunge, causing the mood of panic. In Ukraine, it is not the case: the exchange rate is stable, although maintained artificially, and there is no panic.

Second. The predominant majority of settlements in Ukraine, as well as money transfers to Ukraine from abroad, are carried out exactly the same as in normal peaceful times. Therefore, paying under ongoing contracts in Ukraine, lending in Ukraine, making contributions to equity, paying for exports of goods are not an issue.

Third. However, purchases of foreign currencies and money transfers abroad are nearly completely banned. There are certain exceptions to this ban, in particular, purchases of essential imported goods, national security and defence activities, based on individual NBU authorisations, etc. 

And, of course, there is a near complete ban on any settlements with Russian Federation and Belarus residents. They are permitted to make donations to the army and a limited number of other payments.

Artem: So please correct me if I’m wrong, transferring cash to Ukraine to support local businesses is not an issue, is that the case? One can provide a loan, make a contribution to statutory capital.

Vadym: Generally, yes. We’ve had such requests from certain clients. They wanted to know the best way to structure such transactions, underlying risks, etc. And indeed, receiving cash is not an issue purely from the currency regulation perspective. There is some finer detail to be aware of about contributions to statutory capital as the Unified State Register is now running with limited functionalities. Yet, this does not prevent you from making the actual contribution. 

Similarly, providing a loan and registering it with the NBU is not a problem, however you can forget about payment of interest and repayment of the principal for a certain period of time.

Artem: Let’s look at money transfers abroad again. It is clear that the regulator has imposed severe restrictions on money transfers abroad. But you mentioned there were certain exceptions. Can you tell us about them in more detail?

Vadym: Yes, there is a number of exceptions. One exception relevant to business is payments for essential imported goods. Interestingly, payments for imports of such goods are made in a simplified form without the additional review of documents/information on currency transactions and sources of origin of funds. The list of goods is approved by the Cabinet of Ministers and updated on a regular basis. Initially, the list only included purely essential imports, such as oil, gas, bituminous coal, pharmaceuticals, medical products, essential foods, however the list has since been extended to include items such as alcohol, cigarettes, clothes, furniture, etc. 

Some business representatives believes that the List should be extended further. We recommend reaching out to the Cabinet of Ministers or specialised organisations, who promptly respond to any constructive criticisms of policies in place and update them in most cases.

The list of essential imported goods is currently so extensive that I believe the idea of essential imports is no longer relevant and the NBU should permit import transactions on general grounds for all imported goods subject to currency supervision rules. Business operations are gradually gaining momentum with growing demand for imported consumer products, raw and other materials. Smooth imports of goods subject to currency restrictions would, in my opinion, encourage businesses and investors to take some important economic steps needed for the country.

I also understand that numerous contracts are now in limbo, when the goods have been supplied or services have been provided by the international counterparty but the Ukrainian company hasn't had a chance to make a payment. Given the current regulatory climate, I see a few options to address this situation.

• The simplest one would obviously be to agree to a payment deferral. I think most counterparties should show understanding and make concessions as appropriate.

• Having said that, we understand that payment deferrals will not always be acceptable for the counterparty for various reasons. Your counterparty could have really relied on the proceedings or maybe the counterparty's national law has a 365 day rule similar to ours when the foreign currency proceeds should flow to the country. In this case, an option to consider would be having a foreign company make the payment instead of the Ukrainian business (e.g. under a cession or factoring agreement). It is easier if the Ukrainian company is a member of a global network operating in various countries. It is a bit harder if there is no such network, but it is still possible to look for a financial intermediary who would help make such a payment. 

• And finally, if none of the options work, there is force majeure. It's the least ideal option, but, nevertheless, it has to be considered to avoid late payment penalties.

Artem: So do you expect the NBU to change the regulation in this area. What are the other areas where, in your opinion, the NBU could change regulation?

Vadym: It strongly depends on how much the overall situation with the balance of payments improves or deteriorates.

The National Bank still has additional tools that it could use that many are familiar with. This could be the mandated sale of a certain percentage of foreign currency revenues, or it could be the reduction of timing allowed for settling export and import transactions to 180 or even 90 days.   

I would also expect, to a certain extent, the replay of the 2014 currency liberalisation scenario, when the total ban on outflow of cash abroad will be gradually replaced by specific permits/limits: dividends will be allowed for payment within a certain limit, loans will be allowed for repayment but not before maturity, etc. 

Artem: What about restrictions for individuals? Can you say a few words about what each of us has to deal with?

Vadym: There are certain restrictions in place for individuals. The one most people are concern about is probably the ban on purchasing US dollars :) Also there is a number of limits on certain transactions. At the moment, the NBU has imposed a psychologically comfortable limit on transactions for individuals, being UAH 100 thousand (i.e. a little over USD 3,300 a day or approximately EUR 3,000). For some transactions, this amount is a daily limit and for others, a monthly limit. At the same time, for the absolute majority of transactions involving outgoing cross-border payments, this limit is UAH 100 thousand a month:

• If you draw out cash from a UAH card: UAH 100 thousand a month;

• If you want to transfer cash to an individual account with a foreign bank (P2P transfers): UAH 100 thousand a month;

• Specific area of interest is purchases of assets directly exchanged for cash, the so-called ‘quasi-currency’ transactions. Top-ups of currency exchange e-wallets, brokerage or forex accounts, virtual assets (cryptocurrency): also UAH 100 thousand a month.

For certain transactions, the limit is UAH 100 thousand a day.

• Cash withdrawal from UAH account: UAH thousand a day;

• If you hold an account in a foreign currency, you can withdraw up to UAH 100 thousand a day. This applies both to drawing out cash from a Ukrainian bank's cash desk and abroad (if you draw out cash from an ATM using your Ukrainian card).

And if you are in areas under the threat of occupation by the aggressor state/occupant state, the bank may decide to authorise unlimited cash withdrawals and currency purchases.

Therefore, it can be generally said that the existing restrictions are quite moderate and do not prevent citizens from meeting the majority of their needs.

Artem: So to summarise the above, Vadym, what are your top 3 tips you could give our audience? What are the do's and don’ts?

Vadym: 

Tip 1 - stay level-headed. As unpleasant as currency restrictions may be, they do not aim to paralyse business or your personal finance. If you take the right approach, in many cases any existing problems can be addressed and unexpected expenses/losses from currency restrictions can be minimised.  

Tip 2 - keep track of changes in currency regulation on a periodic basis. They are very dynamic and some things, which are now prohibited, may be allowed tomorrow, and vice versa. 

Tip 3 - trust in Ukraine and its Armed Forces. By the way, donations to the Armed Forces or military bond purchases are not subject to AML procedures and are now simpler than ever. So if you are unable to transfer cash abroad, this is an option for you to consider :)

Artem: Vadym, thank you very much for this conversation, I hope our audience finds it as useful as I did. I’m now off to stock up on military bonds. On this note, we are wrapping our first episode up but if you have any questions for Vadym or any suggestions regarding the topics of our next episodes, leave your comment and we will be happy to answer each of them. In the next episode, we will talk about VAT and what to do with it now.

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