KYIV, Feb 1 - Ukraine is talking to the International Monetary Fund (IMF) about creating a special financial court to settle bank loan disputes to tame growth of non-performing loans (NPLs), Reuters reported Monday citing Kyrylo Shevchenko, governor of the National bank of Ukraine.

The proposed body is intended to give better protection to lenders that may otherwise be unable to recover their loans through a judicial system with a history of corruption while aiming to reduce the proportion of loans that are non-performing to 24% by 2023, down from the current 42%.

“We started this discussion with the IMF mission,” Shevchenko told Reuters.

“The volume of loans in the banking system is more than one trillion hryvnias, which is about $40 billion. This is a large amount and worth defending.”

The IMF’s involvement is part of broader talks on conditions - including various reforms - that Ukraine must meet to receive further tranches of a $5 billion support program approved last June.

Ukrainian authorities, including the central bank, have been embroiled in hundreds of legal disputes over the 2016 nationalization of PrivatBank, Ukraine’s biggest lender.

The central bank says that PrivatBank’s poor lending practices blew a $5.5 billion hole in its finances before it was taken into state hands. The bank’s former owners dispute this and are fighting a protracted battle to reverse the nationalization.

“That is why we are now discussing the option of creating a specialized court or chamber of the court in Ukraine, which will consider issues between creditors and borrowers, as well as between investors and recipients of investments”, Shevchenko said.

He said that a reduction in bad loans would help to attract foreign private investors into Ukraine’s banking system.

More than half of the sector remains in state hands, which Shevchenko called a “big systemic risk”, and the central bank wants to bring that down to 25% in the coming years. (rt/ez)