To ensure the functioning of the banking system in the conditions of war 04/01/2022. The Verkhovna Rada of Ukraine adopted the Law of Ukraine No. 2180- IX “On Amendments to Certain Laws of Ukraine on Ensuring the Stability of the Deposit Guarantee System for Individuals” (hereinafter referred to as the Law), which entered into force on April 13, 2022.
What changes are provided by the Law?
Ukrainians are guaranteed a 100% refund of all deposits during martial law and three months from the date of its termination or cancellation. First of all, as a general rule, in the event of the liquidation of a bank, the state on behalf of which the Deposit Guarantee Fund (hereinafter referred to as the Fund) operates, reimburses depositors within the guaranteed amount. As stated in the explanatory note to the Law, its purpose is, in particular, to increase the level of protection of the rights of depositors, to achieve the necessary level of security for the system of guaranteeing deposits of individuals, to cover the predicted volume of risks in the banking system, and to increase the amount of the maximum amount of compensation. This legal act guarantees the reimbursement to each depositor of the bank of funds in the full amount of the deposit, including interest accrued as of the end of the day, which precedes the day the procedure for withdrawing the bank from the market from the date of entry into force of this Law during martial law in Ukraine and three months from the date of termination or cancellation of martial law in Ukraine. This provision will apply to banks in respect of which a decision was made to withdraw from the market after the entry into force of this Law during martial law in Ukraine and three months from the date of termination or cancellation of martial law in the country.
That is, the effect of the Law on depositors of banks already undergoing the stage of liquidation will not
apply. Thus, the Law establishes the obligation of the Fund for the specified period to reimburse persons for 100% of all deposits.
Who can count on the reimbursement of deposits?
This Law guarantees the reimbursement of deposits only of individuals and individual entrepreneurs.
In addition, the Law establishes that after the expiration of a three-month period from the day following the day of the abolition or termination of martial law in Ukraine, the maximum amount of guaranteed
compensation for depositors of Ukrainian banks will be at least UAH 600,000 (which is three times the
previous amount of the guarantee – 200) thousand UAH ).
This applies to banks that will be declared insolvent from the date of entry into force of this rule (i.e. after a three-month period from the day following the day of cancellation or termination of martial law in the country).
What funds are non-refundable?
Note that the Fund will not refund funds, in particular:
- ¾ transferred to the bank for trust management;
- ¾ placed on a deposit in a bank by a person who is a person related to the bank or who is such a person
within a year before the day the National Bank of Ukraine (hereinafter referred to as the NBU) decides to
classify such a bank as insolvent (in the event that the NBUdecides to revoke a banking license) and liquidation of the bank on the grounds provided for by law – one year before the date of such a decision;
- ¾ placed on deposit by the owner of a significant participation in the bank;
- ¾ placed on a deposit in a bank by a person who provided professional services to the bank as an auditor,
- appraiser, if one year has not passed from the date of termination of the provision of services to the day the NBU decides to classify such a bank as insolvent (in the event that the NBU decides to recall) banking license and liquidation of the bank on the grounds determined by the legislation – one year before the date of such a decision);
- ¾ for deposits in a bank, on which depositors receive interest from the bank on an individual basis under agreements concluded on terms that are not current market conditions in accordance with Art. 52 of the Law of Ukraine "On Banks and Banking Activities" or have other financial privileges from the bank;
- ¾ on a deposit in a bank, if such a deposit is used by the depositor as a means of securing the fulfillment of another obligation to this bank, in full amount of the deposit until the day the obligations are fulfilled;
- ¾ on deposits in branches of foreign banks;
- ¾ on deposits in banking metals;
- ¾ placed on accounts under arrest by a court decision;
- ¾ on the deposit, the satisfaction of the requirements for which is stopped in accordance with the Law of Ukraine "
- On the Prevention and Counteraction of the Legalization (Laundering) of Proceeds from Crime, the Financing of Terrorism and the Financing of Proliferation of Weapons of Mass Destruction"
- In addition, the Law establishes that investments in deposit and savings bank certificates are not deposits, so they will also not be subject to reimbursement.
As reported on the NBU website, on February 25, 2022, the NBU decided to revoke the banking license and liquidate the Ukrainian branches of Russian banks – the International Reserve Bank (100% owned by
Sberbank of Russia) and Prominvestbank (99.77% owned by the State Development Corporation VEB RF).
Based on the foregoing, we can conclude that these changes are aimed primarily at giving people confidence in the future. The introduction of 100% guarantees on deposits provides Ukrainians with peace of mind to preserve their savings, as a result of which the level of confidence in banks increases, which is now urgently needed.
Therefore, if the bank is declared insolvent, depositors will receive their funds in full. Preserving financial stability and ensuring the efficient operation of banking institutions is one of the important state tasks today, and, as we see, legislative initiatives aimed at this are gradually realizing their goals.