Ukraine nationalises its largest bank and IMF is satisfied

The Ukrainian government has decided to nationalize Privatbank - the country’s largest bank, which belonged to the oligarch Ihor Kolomoyskyi.
Ukraine nationalises its largest bank and IMF is satisfied

(Serg Smith, CC BY-SA)

The data released by the Ukrainian central bank, NBU, shows that Privatbank is the Ukraine’s largest bank in terms of assets held, which amounted to UAH272bn as of October 1st, 2016. Deposits held at Privatbank account for 58.9 per cent of all Ukrainian deposits. It has 19.9 million individual customers and hundreds of thousands corporate clients, holding a major share in the consumer loan market (58.9 per cent). It carries out its operations through 4,000 branches.

Privatbank also handles a lion’s share of non-cash transactions – its POS terminals are to be found in most Ukrainian shops. 16.4 million Ukrainians hold Privatbank payment cards.

“As a business, the bank has not ceased to exist – we are not closing it down, and we guarantee deposits of the public. The bank’s equity will now be formed with Treasury securities, there will be a new, strong management team and a supervisory board comprising foreign specialists, who will support its transformation”, said Valeriya Gontarieva, the Governor of the central bank.

To cover the cost of the Privatbank takeover, the government issued 30-year domestic bonds worth UAH150bn. The issue is to be acquired by the Ukrainian central bank against funds constituting part of the foreign exchange reserve, i.e., effectively, a loan extended to Ukraine by the International Monetary Fund. The interim Management Board of the bank is headed by the former Minister of Finance, Aleksandr Schlapak, who started his career in finance at Privatbank ages ago.

According to Swedish economist, Anders Aslund, the IMF was behind the nationalization of Privatbank, and its takeover by the State should have been the condition of the third tranche of the IMF loan.

Privatbanks’ major shareholders were Ihor Kolomoyskyi, holding 41.66 per cent of all the shares, and Giennadiyj Bogoliubow, with a 33.25 per cent stake.

Kolomoyskyi is the only among the Ukrainian oligarchs who is in an open conflict with the Kremlin. In the spring of 2014, he involved the bank in the military operations in the east of Ukraine. Armoured bank ambulances transported volunteers to the front line, while the bank financed the formation and armament of new units. In response, Russia “nationalized” all Kolomoyskyi’s businesses in the occupied Crimea Peninsula.

In the spring of 2014, Kolomoyskyi was appointed as a new head of the administration of the new Governor of Dnipropetrovsk Oblast but stepped down in 2015.

On December 20th, the Ukrainian Prime Minister Volodymyr Groysman made a statement in which he argued that the decision to nationalize Privatbank was made out of concern for its clients’ interests, and was a response to a written request from the owners of the bank, who had “submitted to the State a request concerning a voluntary handover of the bank to the State.”

According to the Ukrainian Prime Minister, the situation around Privatbank could have had an extremely adverse effect on Ukraine’s entire banking system, and the decision on the bank’s takeover ensured safety of the deposits of the bank’s 20 million customers, as well as safeguarding the financial stability of the State.

“We made the decision with the view, above all, to protecting the public’s savings”, he said. In the PM’s opinion, there existed a considerable risk that the bank would lose the capacity to disburse funds to the 3 million retirees, 500 thousand students and 1.6 million other citizens in receipt of social assistance. Wages are transferred to more than 3.5 million accounts held at the bank, with 500 thousand of the bank’s customers being sole proprietors of a business.

“We made a crucial decision which allowed us to protect the interests of Ukrainian citizens”, said Prime Minister.

The bank’s former executives have a different view of the takeover. “Every day, more than UAH2bn are being withdrawn from bank accounts. This has never happened before, not even during the height of warfare. We kept topping up the cash machines non-stop to maintain continuity of withdrawals. At this time, the central bank did not give us a single penny,” said Oleksandr Dubilet, the bank’s CEO, a week before the nationalization was announced.

He thinks that during the two weeks preceding the nationalization “an information attack targeted at the bank was mounted”; the media started to accuse the bank of embezzlement, claiming that it is catering to the needs of the grey economy or facing imminent bankruptcy. It was this, and not a shortage of liquidity, that spread panic among the customers, ending up in a massive run on cash machines and tills.

“The bank has operated in a continuous and stable manner, despite the seven information attacks it experienced at the beginning of the military operations, against the background of the collapsing economy. Each attack resulted in an outflow of funds of individuals and corporations. We took the decision on the voluntary and peaceful handover of the bank to the State once we understood that that we might not survive this information attack and that our customers’ money was at risk ”, states Oleh Gorohovsky, the bank’s Vice President, on Facebook.

According to Ukrainski Novyny press agency, a few days before the decision on nationalization, Petro Poroshenko met with the bank’s shareholders. According to Mykhailo Chaplyga of the Ukrainian Ombudsman office, the government meeting during which the decision on nationalization was made, took place at the President’s headquarters, not the Government’s ones.

President Poroshenko’s officials emphasise that the decision on nationalization of Privatbank was welcomed by the IMF head Christine Lagarde. “Lagarde welcomed the decision on the nationalization of Privatbank, which was an important step towards healing Ukraine’s banking system. The IMF Director emphasised the well-considered and firm measures taken by the country’s authorities, in particular, the NBU head, in this regard,” the portal quoted the officials.

Messages in support of the government’s decision were issued by the G-7 group ambassadors in Ukraine, the World Bank and the European Commission. The move was also praised by Andrey Kostin, the head of the Russian bank WTB which enjoyed unrestricted freedom of operations in Ukraine, despite being covered by the US sanctions: “It was high time for Privatbank to be taken away from this scoundrel”, he said, as quoted by the Russian newspaper Vyedomosti.

“I think Privatbank can be sold. In my reckoning it will take longer than a year, but no more than three years”, said the NBU governor.

According to the Minister of Finance Oleksandr Daniluk, the privatisation of Privatbank might take place already this year. It might be divided and sold piece by piece. The Ukrainian media inform that such an investment could be of interest to the European Bank for Reconstruction and Development.

Following Privatbank’s nationalization, only three key oligarchs will have their own banking structures catering their businesses including the International Investment Bank (MIB), which belongs to the President Petro Poroshenko. Former Ukrainian President Leonid Kuchma’s son-in-law, Viktor Pinchuk, controls the Kredyt Dnipro bank. And then of course, there is Rinat Akhmetov, controlling the Ukrainian mining and energy sector and a large portion of the metal industry – he owns the First Ukrainian International Bank. Today those three, with their close business links with Russia, are the ones who will set the tone on the Dnieper River.

On Wednesday 21 December, two rating agencies, Fitch and Standard and Poor’s, reduced Privatbank’s ratings.

(Serg Smith, CC BY-SA)

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