The National Bank of Ukraine (NBU) has introduced an additional requirement for nonresidents to repatriate interest income received on domestic loan government bonds: the minimum continuous period of investor ownership of this government bond is at least the last 90 calendar days in a row until interest is received.

"This will help prevent premature repatriation of investments by foreign investors," the NBU said in a statement on Friday.

The regulator said that the revised procedure for conducting operations related to the payment of interest on government bonds to foreign investors will come into force as early as May 22 this year.

The above changes are provided by NBU Board resolution No. 68 dated May 19, 2023 on amendments to NBU Board Resolution No. 18 dated 24 February 2022.

The National Bank recalled that the NBU introduced the possibility to repatriate interest received after 1 April 2023 on domestic government debt securities in order to incentivize nonresidents to reinvest the principal amount and accumulated hryvnia funds into the primary market for domestic government debt securities.

At the same time, the NBU previously stated that after April 1, 2023, nonresidents will be able to withdraw all funds under government bonds: both interest and the principal amount after redemption.

After such changes, from April 1, nonresidents invested the funds received from the redemption lot in government bonds with the next coupon payments, which created additional demand for them in the secondary market. The new tightening of the National Bank made such purchases unprofitable.

Earlier, on April 1, the NBU removed another legal scheme to circumvent the ban on repatriation, when it banned, without consent, tax payment of exports of Ukrainian residents received from the repayment of government bonds in hryvnias.

At the end of April, Deputy Head of the National Bank Yuriy Heletiy said that nonresidents currently have the opportunity to repatriate UAH 800 million, or about $20 million, received since April 1 as interest income payments on government bonds.

"The resource that can potentially be withdrawn from Ukraine is about $20 million. We are monitoring the situation and will, if necessary, calibrate our measures," Heletiy said at the time.

He said that for the National Bank and the Ministry of Finance, the priority is for the funds received by nonresidents under government bonds to be directed to the primary market and used by the Ministry of Finance to finance the budget deficit, and said that the ban on repatriation of the principal amount was agreed with the IMF.

"Under the current conditions, when the decision was made, we understood that the potential amount that could be withdrawn, provided that there were no restrictions, is up to UAH 90 billion. This is a large amount for our gold and foreign exchange reserves, we had to act proactively, to minimize this risk," Heletiy said.

As noted in the IMF materials at the end of March, the repatriation of the principal amount could require the sale of $1.56 billion in 2023-2027, while the transfer of received interest payments abroad before the end of this year will require about $120 million.

According to the NBU, the portfolio of government bonds of nonresidents (in terms of the principal debt) decreased from UAH 62.4 billion at the beginning of February to UAH 47.6 billion by mid-April, but has now grown to UAH 54.7 billion, as nonresidents began to invest into papers with the nearest coupons. For comparison, the portfolio of government bonds of Ukrainian banks today is UAH 544.3 billion, that of legal entities - UAH 115.8 billion, and individuals – UAH 39.3 billion.