noteName of the step: Adoption of the strategy for resolution of non-performing loansRelated reform/investment: Reform 3. Improved resolution of non-performing loansFinanced from: loanContextThe requirement for step 5.4 described in the CID annex is:‘Adoption of the strategy for resolution of non-performing loans in line with the relevant EU practices. The strategy focuses on these main areas:
1)summary document duly justifying how the step was satisfactorily fulfilled, in line with the requirements set out in the CID Annex;
2)copy of the ‘Lending Development Strategy’ dated 6 June 2024.
—strengthening of the prudential requirements for the NPL recognition and resolution;
—exchange of data on the NPLs and other relevant market data between the financial institutions and state agencies to improve NPL resolution;
—review of potential obstacles and development of measures to improve the framework for NPL restructuring and resolution.’
Step 5.4 is the first step in the implementation of Reform 3 of Chapter 5 (Financial Markets). It is followed by Step 5.5 (due by Q1 2026) on the entry into force of the legal acts to improve resolution of non-performing loans.Evidence providedAnalysisThe justification and substantive evidence provided by the Ukrainian authorities cover all the constitutive elements of Step 5.4.The objective of Reform 3 in Chapter 5 (financial markets) is to improve the resolution of non-performing loans (NPLs). To this end, the Financial Stability Council of Ukraine adopted the ‘Lending Development Strategy’ on 6 June 2024.The strategy seeks to put in place a legislative framework to facilitate lending, incorporating a defined set of measures and an implementation timeline aimed at improving the resolution of NPLs, in line with the relevant EU practices, such as those on insolvency and debt recovery.In particular, the strategy outlines measures aimed at strengthening prudential requirements for the recognition and resolution of NPLs. This includes refining the definition of NPLs by distinguishing between non-performing and defaulted assets, and by extending the scope of ‘non-performing’ to include impaired assets not formally in default. Additional measures include reinstating the obligation for banks to update and submit strategies for managing and resolving NPLs.The strategy also encompasses measures to improve the exchange of data related to non-performing loans and other relevant market information between financial institutions and state agencies, with the objective of improving NPL resolution. These include expanding the functionality of the National Bank of Ukraine’s Credit Register, broadening access for banks and other financial market participants to state electronic information resources, developing proposals to improve the exchange of information concerning NPL sales, and the associated access rules. All these measures should improve NPL resolution.Finally, the strategy provides for a review of legal and procedural barriers and sets out measures to improve the framework for NPL restructuring and resolution. This includes improving the legislation relevant to NPL resolution, particularly through amendments to the Code of Ukraine on Insolvency Proceedings to enhance the selection and oversight of bankruptcy trustees, improve auction procedures for the sale of bankrupt assets, and align with the principles of Directive (EU) 2019/1023 of the European Parliament and of the Councilnote on preventive restructuring. Additional measures should introduce safeguards against fraudulent practices and undue influence in insolvency proceedings, enhance the legal framework for financial restructuring and debt write-offs and improve the regulation of debt collection and collateral enforcement.Commission assessment: satisfactorily fulfilled