Each local community has the right to both provide loans (for example, put money in deposit accounts or IGLB to receive interest), and take loans from commercial institutions. This is done through public or private banking institutions. They check the client’s credit history before issuing a loan.
The National Bank of Ukraine changed requirements for assessing the financial condition of local self-government debtors when calculating the amount of credit risk. It will be easier for local communities to take loans. The press service of the NBU reports.
What has changed in the policy of banks towards municipal borrowers?
Banks will be able to determine the class of the borrower-issuer of securities. They will take into account the credit rating of a particular local government. If there is no such rating for securities in hryvnia, then banks have the right to determine the class of the borrower based on the credit rating of Ukraine on the international scale.
An indicator of condition is taken and lowered by one level to determine the credit rating of a particular municipality. For example, if Ukraine’s credit rating is ‘B’ by Fitch Ratings, then banks should calculate the community credit rating as ‘B-‘. The regulator also lowered the lower limit of the credit risk calculation range to 0.6. This applies to municipal and government securities. The values of the coefficients can be accepted by banks at the time of calculating the credit risk for a particular self-government body have been increased.
Such actions will make it possible to more actively support the municipality with loans from banks. This will accelerate the development of infrastructure and social projects in each OTC. This is especially important during an economic downturn. It will provide significant support to the economy.
Banks will be allowed not to apply the collateral insurance requirement to simplifying lending to the municipality by early 2022. It is easier for local communities to raise money. The changes prescribed in this article were approved by the National Bank of Ukraine on November 30 this year. This decree came into force on December 2 this year.
