Ukraine's NBU tightens procedure for repatriation of interest on domestic government debt securities by nonresidents, requires keeping them for at least 90 days
MOSCOW. May 22 (Interfax) - The National Bank of Ukraine (NBU) has set an additional requirement for nonresidents to repatriate interest income obtained on domestic government debt securities: the minimum continuous period for holding domestic government debt securities by an investor is at least the last 90 consecutive calendar days before interest is received.
"This will help prevent the premature repatriation of investment by foreign investors," Ukrainian media quoted the NBU as saying last Friday.
The regulator noted that the updated procedure for operations associated with the payment of interest on domestic government debt securities to foreign investors will take effect as early as on May 22 of this year.
These changes are stipulated by the NBU Board resolution dated May 19, 2023 and amended by the resolution dated February 24, 2022.
The NBU noted that it had introduced the possibility of repatriating funds obtained from interest payments on domestic government debt securities after April 1, 2023, in order to create incentives for nonresidents to reinvest the received principal amount and the accumulated hryvnia funds on the primary market of the domestic government debt securities.
At the same time, the NBU said earlier, that after April 1, 2023, nonresidents will be able to withdraw all funds from domestic government debt securities: both interest and principal amount after maturity.
Following these changes, nonresidents have been investing the funds obtained from the maturity of domestic government debt securities with the closest coupon payment since April 1, which has caused additional demand for them in the secondary market. The new NBU tightening measures made such purchases unprofitable.
Previously, since April 1, the NBU had removed another legal scheme to circumvent the repatriation ban, when it banned without the consent of the tax authorities the payment for Ukrainian residents' exports with hryvni obtained from the maturity of domestic government debt securities.
In late April, National Bank Deputy Governor Yury Geletiy said nonresidents currently have the ability to repatriate 800 million UAH, or about $20 million, obtained as interest income payments on domestic government debt securities since April 1.
"The resource that could potentially be withdrawn from Ukraine is about $20 million. We are monitoring the situation and will, if required, adjust our measures," Geletiy said at the time.
He emphasized that the priority for the National Bank and the Finance Ministry is to ensure that the funds that nonresidents receive on domestic government debt securities are directed to the primary market and used by the Finance Ministry to finance the budget deficit, and noted that the ban on the repatriation of the principal amount has been agreed with the International Monetary Fund (IMF).
"In the current situation, in the conditions when the decision was made, we understood that the potential volume that could be withdrawn if there were no restrictions, is up to 90 billion UAH. This is a large amount for our foreign exchange reserves, we had to act actively, to minimize this risk," Geletiy said.
As noted in the IMF materials in late March, the repatriation of the principal amount could require the sale of $1.56 billion in 2023-2027, while the withdrawal of interest payments received abroad by the end of this year will require about $120 million.
The NBU said the portfolio of nonresidents (by principal amount) has dropped from 62.4 billion UAH in early February to 47.6 billion UAH in mid-April, but it has increased to 54.7 billion UAH by now, as nonresidents began to invest in securities with the close coupons. For comparison, the portfolio of domestic government debt securities of Ukrainian banks currently stands at 544.3 billion UAH, legal entities - 115.8 billion UAH, individuals - 39.3 billion UAH.