Car loans restricted in Ukraine due to new law on mobilisation
12 June 2024 13:58
The new law “On Mobilisation” has had a significant impact on the car loan and leasing market in Ukraine. Despite the fact that the Armed Forces of Ukraine have not yet confiscated cars from their owners, banks and leasing companies have already begun to reduce the amount of financing for cars and specialised equipment, and some of them have secretly suspended their programmes. This was reported by the Ministry of Finance, according to "Komersant Ukrainian"
The law on mobilisation provides not only for conscription into the army, but also for the possibility of seizing vehicles from civilians and organisations for the needs of the Armed Forces. This creates risks for banks and leasing companies.
The main challenges include:
- Mobilisation of the car owner: If a car owner is mobilised, he or she may stop paying on the loan or lease.
- Seizure of the vehicle: The Armed Forces of Ukraine can seize a vehicle that is the subject of a loan or lease.
There are two risks for the leasing market:
- Seizure of a car that is still owned by the bank or leasing company from the future owner.
- The lessee’s withdrawal from the leasing programme and return of the vehicle to the financial institution. It instantly loses at least 30% on the value of the car, as it is automatically considered not new but used.
Financiers doubt that their clients will continue to pay on car loans and leasing agreements if their car is seized. Even though, according to the law, the Ukrainian Armed Forces must return it after the war.
At the same time, everyone understands that if people stop paying under a loan or lease agreement, the financial institution will not be able to cover its losses in the usual way – by selling the collateral or transferring the leased vehicle to another client. After all, the vehicle will end up in the army and will almost certainly not return in its original condition.
For driver clients, the withdrawal of cars for war has several obvious consequences:
- A person is left without a car.
- If the borrower stops paying the car loan, the bank may try to pursue the borrower for the loan debt (depending on the content of the agreement). It may sue and try to recover funds in the accounts or other property for sale as repayment.
- In the case of leasing, a client who cannot use a vehicle owned by a financial institution may try to recover previously paid lease payments. This is a plus for the person and a minus for the bank.
The implications for businesses that have long been accustomed to leasing and loan programmes may be equally global.
Reaction of financial institutions
Banks and leasing companies are already taking steps to minimise risks. For example, some lenders have started asking potential customers for information about the availability of registered vehicles. Customers who already own one or more cars may be denied new car loans, as their new cars may be seized by the military.
Some banks have started to gradually “dry up” their lending and leasing programmes: public closure of lending or leasing is rare, but there are cases of delayed processing of customer applications. Financiers are stalling until the last minute, hoping to get additional clarifications on the application of the new mobilisation law.
At the same time, major players assure that they continue to work with car loan and leasing clients. For example, Privatbank spokesperson Oleg Serga assured that his state-owned bank did not stop working on the car loan programme and continues to accept/review applications.
Current market situation
After the new law came into force, car lending volumes dropped by 40%. Oksana Shulga, Director of SME Banking at Globus Bank, noted that before the full-scale invasion in February 2022, Ukrainian banks had issued 1,374 car loans, accounting for 23% of all new cars sold. In March and April of the same year, this figure fell to 2-3%.
Currently, major market players such as Privatbank and Oschadbank continue to work with car loans and leasing, awaiting further clarification from the government on the application of the new law. FUIB confirmed its leasing activities with legal entities, Unex Bank also continues to provide financial leasing, and Globus Bank continues to offer car loans and leasing.
However, some banks, such as Sens Bank and Raiffeisen Bank, have already suspended their car lending and leasing programmes.
In the context of the war, the car lending and leasing market in Ukraine has faced serious challenges that require rapid adaptation and new strategies to minimise risks and maintain financial stability.
