The Ukrainian Prosecutor General's Office (PGO) has opened a criminal probe against the former management of PrivatBank over its taking the lender into insolvency, the bank’s board chairman Oleksandr Shlapak told journalists on July 4.

Shlapak said the investigation concerns loans for a total of UAH133bn (€4.5bn) provided to borrowers that did not conduct economic activities and had a negative financial state, Interfax news agency reported.

The statement followed the expiry of the July 1 deadline for voluntary restructuring of loans of PrivatBank’s former oligarch owners Ihor Kolomoisky and Hennady Boholyubov. The businessmen had failed to fulfill their obligations, the National Bank of Ukraine (NBU) said in a statement on July 3.

The authorities have a legal option to try to prosecute Kolomoisky and Boholyubov for allowing the bank to go insolvent. But in the past three years there have been no precedents in Ukraine of owners of bankrupted lenders being punished under this law.

The businessmen had committed to carrying out a restructuring programme by mid-2017. If they successfully restructured 75% of the portfolio, the NBU said it would consider extending the restructuring of the remaining 25% to late 2017.

According to the regulator, the state and PrivatBank have already taken steps for applying an appropriate legal strategy, but details were not disclosed. The banking procedure will be close to the usual procedure for repossession in case of overdue debts, so it is “more about foreclosure”, the NBU added.

Shlapak added that talks had begun with the former owners of PrivatBank about restructuring the portfolio of loans to related parties. “No results yet, but they are ongoing,” he said.

In separate comment, Prime Minister Volodymyr Groysman said criminal responsibility for non-compliance with the law will follow for Privatbank’s former owners. “If the obligations are fulfilled, there will be corresponding decisions on them, [and] if they are not fulfilled, and the NBU witnesses this, then criminal responsibility for non-observance of the law will follow,” Groysman told the ICTV television channel on July 3.

The government nationalised the country’s largest lender last December after it failed to fulfill a three-year recapitalisation plan. The bank was found to have a UAH148bn (€5.1bn) hole in its balance sheet, which at the time was said to be almost entirely due to related-party financing. In April, NBU governor Valeriya Gontareva said the post-nationalisation audit of the bank found that 100% of the corporate portfolio was issued to related parties.

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 June 23, the Ukrainian authorities said they will inject UAH38.5bn (€1.3bn) of additional capitalisation.