Clients withdraw currency from banks through court actions

For the little guy the dollar equivalent of 15 thousand UAH - a substantial sum

Photo: Reuters

The effective resolution of the National Bank of Ukraine (NBU) No. 328 prohibits financial institutions to let their clients withdraw more than UAH 15,000 per day from their settlement accounts and deposit accounts. Yet, the savers can withdraw the entire amounts of major deposits with the help of court orders. The amount of claims, won by the Kravets & Partners Law Firm alone, has amounted to US $600,000. “We have another five such lawsuits in progress, their total amount is close to US $5 mn,” says senior partner Rostyslav Kravets.

Themis to the rescue

Investors seek recovery of foreign currency deposits through commercial courts. As a rule, a defendant bank does not appeal and in six weeks the applicant receives a court ruling on the satisfaction of the claim. “If the banks resist, hearing of such cases could drag on for four or five years,” says Kravets. The courts side with clients of financial institutions, because the NBU’s resolution has not passed state registration in the Ministry of Justice and therefore it cannot be considered valid, the lawyer said. The resolution cannot be registered at the Ministry of Justice due to a contradiction in its provisions to articles 1060 and 1074 of the Civil Code of Ukraine, which assign the right of free disposal of funds to account holders and allow withdrawing them from the banks immediately upon request.

There are also some attempts to cancel the regulator’s restrictions altogether. According to the NBU’s website, on July 14 the Kyiv District Administrative Court will hold a hearing for the appeal against decisions of the NBU No. 245 and No. 328. Those regulations extended the validity of currency restrictions till June 1 and September 1, respectively.

The IMF also disapproves of the rules established by the NBU. Based on the memorandum signed with the IMF for a loan of US $17.01 bn, Ukraine should not introduce new restrictions on foreign exchange operations. At the same time, phasing out of existing restrictions should start at the end of July 2014.

Reverse effect

Making its ruling the NBU sought to establish a balance on the currency market and stop the outflow of deposits. The NBU introduced the first restrictions on currency transactions with Decree No. 49 of February 6, 2014. The document imposed restrictions on the purchase of currency on the interbank exchange on behalf of individuals. It also introduced a number of restrictions for entrepreneurs and legal entities: they were allowed to withdraw currency from their accounts only up to the amount that was on account at the start of trading day.

Nevertheless, the outflow of foreign currency deposits increased at month-end: in January the size of individuals’ deposits in foreign currency decreased by only 1.5%, in February – already by 6.3%. Then on February 27 the NBU adopted a new Decree No. 104, which introduced the daily limit for the withdrawal of currency at the level of UAH 15,000. This time the restriction did not help to control the outflow of currency deposits. The amount of deposits in foreign currency in dollar terms fell by 24.5% - to US $23.2 bn since the beginning of the year.

Bankers admit: restrictions introduced by the NBU prevent restoration of depositors' confidence in the banking system. Ukrainians are more eager to deposit hryvnia, assured First Vice Chairman of the National Credit Bank Lyudmyla Mishchuk. Bankers managed to stop the outflow of money in national currency – in June the total of hryvnia deposits increased by 0.1%.