Graham Stack in Berlin -

In a bizarre incident highlighting Ukraine's financial troubles, the head of Ukraine's central bank, in the presence of journalists, tried and failed to buy $200 in cash from the nearest bank as the country remains gripped seized by a dollar drought. Adding to the intrigue, the bank in question was Russian state-owned Sberbank.

Ever since Ukrainian President Petro Poroshenko on September 23 in a table-thumping tirade personally demanded the country's leading banks and oligarchs support a hryvnia exchange rate of UAH12.95 to the dollar, the seemingly unstoppable fall of the hryvnia has halted and stabilized around the UAH12.95 mark. But as a result it is basically impossible for all but a small circle of state companies to now buy dollars. The hryvnia stabilization made it possible for state energy company Naftogaz to repay a guaranteed $1.67bn Eurobond on October 1, but has left other Ukrainian companies high and dry.

Journalists called out National Bank of Ukraine chief Gontareva, a close Poroshenko ally, over this at a press conference on October 6, after which she volunteered to accompany them incognito to the nearest bank to purchase $200 in cash – the maximum value of currency or bullion banks are allowed to sell to any one individual per day, according to a NBU order in the run-up to the Naftogaz bond payment. Proving the journalists' point, the bank's cashier refused to sell dollars to Gontareva, without providing any reason, according to Interfax Ukraine.

Adding to the drama, the bank in question was Sberbank, Russia's largest state-owned bank, and its Ukrainian subsidiary one of Ukraine's top ten largest. The bank thus did Gontareva a disservice, experts say, after she has defended the right of Russian state banks, the main lenders in Ukraine in recent years, to continue operations in the country without any confiscation of assets, following Russian aggression against Ukraine in Crimea and the eastern Donbass region in 2014.

Dollar drought

While Sberbank's involvement in the story was coincidence, the episode highlights that Ukraine has scraped together every dollar it could find in the house to repay a $1.67bn eurobond to Naftogaz, in order to make a point about the country's good faith going forwards. "If you don't pay your debts, nobody will lend you again, and nobody will talk to you either," Prime Minister Arseny Yatsenyuk said on TV on October 4. "We paid everything down to the last kopeck, and we will be making payment no matter how difficult it is," Yatseniuk added, as quoted by Interfax.

"Often we don't give due credit to countries which pay when they could so easily have restructured/reprofiled, but work that much harder to pay," commented Standard Bank's Tim Ash on Ukraine's willingness to go to the limited to pay off debt.

But the titanic exertion to pay down the Naftogaz bond has caused a countrywide dollar drought affecting not only the population, but even some of the country's largest corporates. Thus VAB Bank, Ukraine's 15th largest by assets, announced on October 2 that it had defaulted on a $2m coupon payment on a $88m Eurobond, originally due September 14, due to its inability to find the currency. “Our ability to purchase foreign currency is limited due to new limitations on foreign currency transactions,” the bank’s CEO Denis Maltsev was quoted by Interfax as saying. Maltsev added that the bank will have found enough dollars to repay the coupon “in week or two.”

This despite the fact that bank boasts total assets of around $2bn, $0.5bn of which is denominated in foreign currency. Moreover, VAB Bank is 90% owned by Ukraine's leading agriculture oligarch Oleh Bakhmatyuk, owner of giant grain producer Ukrlandfarming and egg producer Avangardco, both of which have sold hundreds of millions of dollars of Eurobonds.

"Foreign currency regulations indeed have become unusually tough over the last month," says brokerage Concorde Capital's Oleksandr Paraschiy. "At the same time, no single regulation prevented the bank from explaining this to its bondholders three weeks ago, when the coupon was due."

It is unlikely that the dollar drought will abate any time soon, given Ukraine's continued debt payments of around $2.1bn through to the end of 2014, Deputy Finance Minister Vitaly Lisovenko said on October 3, speaking at the Kyiv International Economic Forum. This does not count payments on gas supplies due to Russia, and potentially the early repayment of a $3bn eurobond held by Russia. "The Ukrainian budget has enough currency to service all its currency-pegged credits until the end of the year… Ukraine pays its debts in full and on time," Lisovenko said, according to newswires.

At the same time, pressure is mounting on NBU head Gontareva over her tough position on the currency and provision of refinancing loans, as well as closures of numerous small banks engaged in black market activities. At the press conference she told reporters that in the early morning of October 6 her house had been attacked by a group of 15 people throwing eggs and paint at the walls. Gontareva, who has been in her high pressure job 100 days, previously acknowledged that she had been hospitalized on a drip due to overwork.