Ukraine injects further €1.3bn into PrivatBank, lender's board chairman resigns

Ukraine injects further €1.3bn into PrivatBank, lender's board chairman resigns
PrivatBank to receive another €1.3bn after €5.2bn from the Ukrainian government and unsecured creditors. / Photo by PrivatBank
By bne IntelliNews June 26, 2017

The board chairman of Ukraine’s embattled PrivatBank, Oleksandr Shlapak, tendered his resignation on June 26, three days after national authorities said they will inject UAH38.5bn (€1.3bn) of  additional capitalisation to the country’s largest lender.

According to a bank statement, Shlapak “has fully fulfilled the tasks set to stabilise the situation in the bank” and conduct its audit. “The board chairman continues managing the bank,” the statement added. “[However,] he has already submitted the relevant [resigning letter] to the supervisory board of the bank.”

Shlapak’s resignation should be considered at the next meeting of the bank's supervisory board in July.

Meanwhile, the National Bank of Ukraine (NBU) said on June 23 that the latest injection of capital into PrivatBank will enable it to meet the 10% capital adequacy requirement, even under a conservative scenario applied by the EY audit company when performing due diligence of the bank’s balance sheet recently.

UAH22.5bn will be used to plug a capital shortfall stemming from the former management’s involvement in fraudulent operations before nationalisation, according to the NBU. The funds will also set aside provisions against the financial leasing portfolio, given that the quality of its servicing by persons related to the bank’s former owners deteriorated after PrivatBank’s takeover by the state last December. An additional UAH16bn will be required to cover impairment losses on fixed assets.

The Ukrainian government announced the nationalisation of PrivatBank after it had failed to fulfill a three-year recapitalisation plan. The bank was found to have a UAH148bn (€5.1bn) hole in its balance sheet as of early December, which at the time was said to be almost entirely due to related-party financing.

To cover the capital shortfall, the government injected UAH117bn (€4.1bn) and bailed-in PrivatBank’s non-deposit unsecured creditors for UAH29.4bn ($1.1bn), including bondholders for the amount of $595mn.

On April 10, NBU governor Valeriya Gontareva told journalists that the post-nationalisation audit of the bank found that not 97% but 100% of the corporate portfolio was issued to related parties. PrivatBank’s former owners Ihor Kolomoisky and Henadiy Boholyubov deny any wrongdoing.

“The NBU believes that the capital required to cover impairment losses on fixed assets can be reduced by developing a clear collateral management and debt recovery strategy for the bank,” NBU deputy governor Kateryna Rozhkova said in the statement.

According to the regulator, additional capital will be injected into PrivatBank through the issuance of domestic government bonds (DGBs). It should be noted that the monetisation of this capital will not be required at this stage. At present, the bank’s liquidity exceeds UAH17bn and the equivalent of $800mn. Hence, the bank has no need for fresh cash. Accordingly, Privatbank’s recapitalisation without the subsequent monetisation of DGBs will have no impact on the exchange rate and inflation.

The finance ministry in Kyiv said separately the same day that EY’s conclusion shows that the bank was in a worse condition than it was considered at the moment of the bank's transfer into state ownership.

“The audit conclusion suggests that the bank has to form additional reserves to cover losses from credit operations,” a ministry statement said. “Consequently, being a shareholder, the state is forced to support the bank with additional capital in order to ensure proper functioning and development of the bank.”

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