Parliament is set to strengthen protection of bank depositors and investors. What are market participants saying?
Lawmakers plan to significantly strengthen the protection of bank depositors. Bill No. 13007, "On Amendments to certain legislative acts of ukraine regarding the regulation of certain issues related to the Deposit Guarantee Fund, the National Bank of Ukraine, and Collective Investment Institutions," has been registered in Parliament.
It is intended to address a number of legislative gaps, strengthen confidence in the financial system, and fulfill one of Ukraine’s commitments under its cooperation with the IMF.
The authors of the bill argue that its adoption will help reduce the risk of capital outflows from the banking system, boost banks’ involvement in the resolution of insolvent banks, and enhance the resilience of the banking sector. BusinessCensor has reached out to the regulator and market participants for their analysis of the document.
Cooperation with the IMF
The main purpose of the proposed amendments, according to the explanatory note to the bill, is to expand the use of resolution methods for insolvent banks that do not involve complete liquidation of banks. These include the sale of the entire bank to an investor, the establishment of a transitional "bridge" bank, and the full or partial transfer of assets and liabilities to another (receiving) bank.
The latter method was recently successfully applied to Cominvestbank, whose clients were transferred to Asvio Bank with all contract terms preserved — including deposit type, currency, interest rate, and maturity period. The Deposit Guarantee Fund (DGF) believes that resolution, rather than full liquidation, should become a permanent practice for removing banks from the market, as this mechanism is the least disruptive for both bank clients and market participants overall. However, under the current legislation, attracting an investor or a receiving bank remains a rather challenging task.
"The bill eliminates the legislative obstacles that cause this imbalance," the Deposit Guarantee Fund stated. "It is one of Ukraine’s commitments under its cooperation with the IMF. At the same time, the bill does not alter the distribution of powers and enhances coordination between the NBU and the DGF in preparing for the withdrawal and resolution of insolvent banks."
According to the NBU’s press service, this bill is not intended to change the functions of the National Bank and relates to improving the provisions of the law concerning the exercise of the existing powers of the Deposit Guarantee Fund.
Thus, the document introduces the following changes:
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Investors seeking the assets and liabilities of a bank being resolved will have more time to review information about the bank, while the Fund will have more time to assess its assets;
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It enables the combination of several resolution methods within a single bank, which is expected to stimulate interest in tenders from medium-sized and smaller banks;
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The process of obtaining preliminary qualification for potential investors and receiving banks is simplified, and their protection is enhanced.
Simplifies the receipt of funds for creditors
All of the proposed changes will contribute to strengthening the stability of the banking system and protecting the interests of depositors and other bank creditors, the NBU stated.
"The bill also aims to enhance the level of protection for depositors and other bank creditors during the process of their market exit and liquidation, as well as to introduce modern international practices aimed at ensuring the resilience of Ukraine’s financial system," the National Bank explained.
In particular, bill No. 13007 proposes a simpler mechanism for preserving creditors’ funds: funds not claimed during a bank’s liquidation may be received for an additional three years directly from the Deposit Guarantee Fund.
In addition, the legislative amendments are intended to increase transparency in the use of funds and other assets that remain unclaimed. Such assets will remain within the deposit guarantee system and will be allocated for guaranteed payouts to depositors of insolvent banks.
They will also allow for the extension of a bank’s liquidation procedure during martial law if the bank has transferred property to the Defense Forces.
Simplifying procedures for depositors
As it is known, 100% of individual deposits, including accrued interest, are guaranteed during wartime. Three months after the end of martial law, the guaranteed amount will be UAH 600,000. Under the current law, any amount exceeding this limit will be returned to depositors as creditors’ claims in order of priority, for which they must submit their claims no later than 30 days after the publication of the relevant notice.
Bill No. 13007 simplifies the process of receiving such funds — claims on deposits of all individuals, except those affiliated with the bank, will be recognized automatically.
"The law strengthens the protection of bank depositors and creditors," said Ruslan Hrytsenko, Executive Director of the Independent Association of Ukrainian Banks. "The protection of depositors and creditors is the primary task of the Deposit Guarantee Fund. To achieve this, the DGF must have effective and efficient tools to address the problems of insolvent banks, as this is a key element in maintaining depositors’ confidence in the functioning of the entire banking system... Therefore, its adoption is an important step toward preserving public trust and the country’s financial stability."
Investors protection
Historically, one of the most common tactics used by unscrupulous borrowers and shareholders of insolvent banks has been to block Deposit Guarantee Fund auctions by challenging the auction results in court. This causes significant harm to investors, who have no guarantee that their investment will not be contested years later. Moreover, if the proceeds from the sale of an asset have already been transferred to the bank’s creditors, there is no mechanism for returning those funds to the investor. This situation makes the assets of insolvent banks a rather risky investment.
The adoption of Bill No. 13007 will allow investors to feel more secure and, therefore, more likely to pay a higher price for an asset. To achieve this, the authors of the bill propose to limit the time frame for appealing auction results to one month from the date of the auction.
"The establishment of clear limitation periods will minimize delays in the sale of insolvent banks’ assets and the depreciation of such assets. This will primarily benefit depositors whose claims are satisfied through the sale of these assets, as well as investors who purchase assets at public auctions," explained Yurii Fedoriv, Partner, Head of Restructuring and Financial Services at KPMG Ukraine.
The bill also includes provisions stipulating that any remaining funds and assets of an insolvent bank not claimed by its shareholders will be transferred to the deposit guarantee system.
"The NBU noted that the bill proposes "to enshrine at the legislative level a clearly defined procedure for the distribution of residual property (assets), which will reduce the number of contentious and ambiguous issues in the disposal of property that may remain after the claims of creditors of a bank undergoing liquidation have been satisfied."
According to economist Eric Naiman, the legislative changes will protect depositors and, in doing so, may strengthen the banking sector by increasing shareholder accountability.
At the same time, the bill is expected to safeguard the Ukrainian banking sector from the influence of Russian capital.
"Bill No. 13007 primarily enhances protection against Russian bank owners, as it is essential to prevent their entry into the Ukrainian banking sector. From another perspective, the proposed changes limit access to information about a bank in liquidation, thereby preventing speculation based on that information," said analyst Andrii Shevchyshyn.
According to the Cabinet of Ministers’ website, the bill has already been endorsed by the Ministry of Economy, the Ministry of Finance, and the State Tax Service. The government hopes that the adoption of the law will reduce the risk of capital outflows from the banking system, increase banks’ involvement in the resolution of insolvent banks, and strengthen the resilience of the banking system.
