Sergei Kuznetsov in Kyiv -
Ukrainians who took out mortgages in foreign currencies have been badly hit by the devaluation of the country’s currency, the hryvnia. Many of them will are struggling to repay their debts, and have appealed to the government to lessen the financial burden. But it looks like the Ukrainian authorities are not listening.
Following this year’s political, economic and military crisis in Ukraine, the hryvnia slid to about 11.7 per dollar, having stood at 8.0 per dollar at the beginning of 2014. This is a painful blow for borrowers who receive their salary in hryvnia but must convert part of it into foreign currency in order to service their mortgages.
In the course of the last two months, hundreds of borrowers have protested outside government buildings in the centre of Kyiv, demanding help. “They are not refusing to pay. These people just want to say that, due to objective reasons, they can’t pay as much as is being required of them,” Yaroslava Avramenko, a leader of the borrowers’ movement, tells bne.
The movement is called the “Loan Maidan” – an echo of the Euromaidan protests on Kyiv's Independence Square (known as the Maidan) that formed the heart of the recent rebellion against the rule of the now-ousted president Viktor Yanukovych.
According to an outlook by Moody's Investors Service, published in May, the amount of loans going bad and a corresponding rise in Ukrainian banks' non-performing loan (NPL) ratios is expected. “The rating agency anticipates that given the magnitude of the recent currency depreciation and the unhedged position of many borrowers in foreign currencies, formation of new problem loans will accelerate and NPLs will double to close to 30% of gross loans.”
Avramenko says that these borrowers believe that “financial risks” should be shared between the government, banks and borrowers. “We are proposing to convert mortgage loans to hryvnia from foreign currency under the exchange rate that existed at the moment a loan was obtained. The interest rate should be kept at the current level,” she explains.
“This corresponds to a model of social justice between the government and its citizens. The Ukrainian central bank said in 2007-2008 that the hryvnia will remain one of the most stable European currencies. People were taking such statements into account when they borrowed,” Avramenko adds.
Forex borrowers are appealing to the Ukrainian parliament to adopt a bill that takes into account their demands. But the parliament has supported a different version of the bill, one that's been proposed by the government. According to this version, home loans should be converted under the exchange rate at the date of possible conversion, which of course is after the value of the hryvnia has plummeted. “This version of the bill suits every institution except the borrowers,” Avramenko says bitterly.
This is a view shared by analysts. "Indeed, this bill is more favourable for the banks, but it is not favourable for borrowers,” Anastasia Tuyukova, senior analyst at Kyiv-based Dragon Capital, tells bne.
Tuyukova points out that the main advantage of the government's bill is that it is supported by the International Monetary Fund (IMF). “The fund’s opinion is important due to the existence of a bailout programme for Ukraine,” she says.
Ukraine agreed a $17bn two-year support package with the IMF in April. The funding should help the country overcome the current crisis and build the foundations for a recovery. However, Ukrainian officials have already said that the aid package alone is not sufficient. "The IMF package has helped the recovery, but today this is not enough, in that we are experiencing unprecedented aggression from the Russian Federation," Volodymyr Groysman, Ukraine’s deputy prime minister, told international donors at a meeting in Brussels in July.
Oleksandr Turchynov, the head of Ukraine’s parliament, said in July that support of the government-backed bill is crucial for continued cooperation with international donors. “If the parliament adopted an unbalanced bill, the international organisations would cease cooperation with Ukraine, and Ukraine will face a default,” he warned.
Tuyukova admits that the government-supported bill could aggravate the situation regarding banks' levels of bad loans. However, the banks are prepared to discuss with borrowers softening the lending terms on an case-by-case basis, to avoid such developments, Tuyukova believes.
On the other hand, an increase in the banks' NPL ratios should not represent too strong a blow to the banking system. “Since the crisis of 2008, mortgage lending in Ukraine has not been developing. Today, mortgage loans make up just 5% of the banking system’s loan portfolio. One third of them are already NPLs. If even one third more of loans were to be added, it still would not be a problem for the whole system,” Tuyukova says.
However, a number of banks who specialize in mortgages could be badly hit by the crisis, she adds.
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