Loan restructuring – restructuring of foreign currency loans

Assistance in restructuring foreign currency loans, conversion of a dollar loan to hryvnia

The restructuring of foreign currency loans in Ukraine is a problem that currently troubles almost everyone who took loans in foreign currency long before the law of 16.10.2011 was enacted. Many people who took out mortgages and other loans even before the first wave of the crisis, when the dollar exchange rate was 5 UAH/USD, ask themselves: will banks restructure loan debt from foreign currency to hryvnia, and if so, at what rate? Will the restructuring of foreign currency mortgage loans be able to ease the lives of borrowers who found themselves in a desperate situation due to the sharp collapse of the exchange rate.

Loan restructuring is an agreement with the bank to revise and change the terms of debt repayment.

At the moment the Draft Law “On the restructuring of loan obligations from foreign currency to hryvnia” has been adopted in the first reading. In addition, banks continue to sign a memorandum on the restructuring of foreign currency loans. This is a document-agreement on the implementation by banks that signed it of certain rules.

But it should be clearly understood that a memorandum is not a legislative act but merely a voluntary agreement that does not obligate a financial institution to anything. According to this document, restructuring of foreign currency loans in Ukraine may be provided to those whose consumer debt is secured by a mortgage and does not exceed 2.5 million UAH at the rate of 7.99 UAH/USD that was in effect on 01.01.2014. Restructuring of a foreign currency loan by banks that have signed the memorandum will be carried out into the national currency at the rate established at the time of this action, after which the resulting amount is subject to division into two parts. The amount representing the difference between the current rate and the one fixed on 01.01.2014 is subject to gradual write-off by the bank proportionally to the amounts of repayment of the remaining debt. The remaining loan amount is assigned an interest rate for a period of 3 years, which was established in the borrower’s foreign currency loan agreement. At the end of this period the interest may be changed.

Also, the debt restructuring provided for in the memorandum offers the bank to fully write off all accrued penalties and fines for late loan repayment. From the above it follows that the restructuring of mortgage loans can only concern those debtors who will continue to pay on their loans, since the write-off of part of the debt (exchange rate difference) occurs proportionally to the amount of repayment of the remaining debt.

Another point to consider is the following: despite the fact that banks, especially large ones, sign this document, it will come into effect only after amendments are made to certain laws, one of which is the Tax Code. Meanwhile many financial institutions, which, like their clients, found themselves in a difficult financial situation, make significant concessions to borrowers and make amendments to loan agreements that provide for the restructuring of personal loans. The programs under which foreign currency mortgages are restructured differ from bank to bank. The main possible measures for revising lending are:

• provision of “loan holidays” (deferral of payments on principal or interest for a certain period);
• extension of the loan term (which will reduce the monthly loan burden);
• conversion of a foreign currency loan to hryvnia;
• revision of the interest rate, accrual mechanism.

Mortgage loan restructuring

Mortgage loan restructuring is qualified legal assistance to the borrower in fulfilling obligations and restoring his solvency. A mortgage loan, unlike other types of consumer lending, has certain features, because of which mortgage restructuring is indispensable for any borrower today. If you do not take into account all the features of lending and delay when you are unable to service the loan, not only the borrower’s obligations will increase, but also the mortgage rate, and consequently the loan debt. Such an unpleasant situation can only be avoided if you timely seek help from an experienced specialist who will help understand your specific financial situation, develop an optimal repayment scheme and prepare the corresponding application to the bank requesting restructuring.

How to achieve loan restructuring

You need to submit an application to the bank together with an additional agreement on restructuring; templates of these documents can be obtained at the bank branch or you can use our sample.

Sample application to the bank for loan restructuring
Sample Additional Agreement to the loan agreement

The data that need to be entered into the Supplementary Agreement to the loan agreement entirely depend on the original wording of the loan agreement. Therefore it is necessary to carefully study all the clauses of the loan agreement and only after that set out in the Supplementary Agreement the clauses that need to be changed, supplemented or excluded.

Revision of lending terms is currently carried out exclusively by agreement with the bank, so the client needs to be as persuasive as possible when approaching the bank and be able to justify the reasons why he should be granted loan restructuring.

Additional grounds that help convince the bank that you need such a step as converting a dollar loan to hryvnia, or be provided with another method by which mortgage loan restructuring is carried out, can include the following circumstances: loss of income, job; serious deterioration of health, obtaining disability; death of a family member, loss of a breadwinner; divorce and so on. If these circumstances have negatively affected the borrower’s financial situation, they should be confirmed documentary: a certificate from the workplace, a copy of the employment record book, a certificate from the employment center, a death certificate, a family composition certificate, a refugee status certificate, etc.

You can submit the said application with attachments to the bank in one of the following ways:

• in person at the bank branch. Be sure to print two copies: submit one to the bank, on the other the bank employee must stamp a mark confirming receipt of your application (indicating the date). This copy must be kept;
• by sending by registered mail with return receipt. Submit the application to the branch where the contract was signed, as well as to the bank’s central office.

If your application is ignored or you receive a negative response, file a complaint with the State Inspectorate for Consumer Protection and the NBU, indicating that the appeal to the bank yielded no results. Be sure to keep copies of all appeals, delivery receipts, and shipping receipts.

The financial situation of both borrowers and banks today is quite tense. Even if the lender meets you halfway and agrees to restructuring, banking schemes, the method of interest calculation, a mass of exceptions and additional agreements can seriously confuse you. It will be very difficult for a person without legal or financial experience to understand all these subtleties. There is no single absolutely advantageous debt restructuring scheme, since everything depends on the original lending conditions, the contract term, the amount of debt repayment, the interest rate, the currency, and so on.

A restructuring scheme that significantly eases the financial burden of one borrower may lead to serious losses for another. Therefore it is necessary to approach the study of all aspects of the proposed changes with extreme care, consider all possible scenarios and understand the financial issues.

If you are not 100% confident in your abilities, contact the specialists of the legal association “Nakaz”, who will provide:

• a full legal analysis of the existing debt documents – this will make it possible to identify possible violations of legislative norms, which will be an additional lever of influence on the creditor and grounds for going to court;
• preparation of the complete package of documents for the negotiation process with the bank — the lender’s decision depends on the persuasiveness and justification of the borrower’s claims for the application of such a procedure as the restructuring of foreign currency loans into hryvnia, as well as on the availability of qualified documentary evidence. Moreover, the bank will have no doubts about the seriousness of your intentions and your readiness to go all the way;
• development of an optimal repayment scheme for the borrower – a qualified lawyer from the company “Nakaz” will tell you all the possible negative consequences of choosing one scheme or another under which the restructuring of foreign currency mortgage loans may be carried out (which a bank employee most likely will not do);
• preparation for judicial protection of your rights and interests — the professional execution and documentary recording of the previous points already constitutes excellent preparation for court.