Graham Stack in Kyiv -

The National Bank of Ukraine handed a UAH1bn bailout to Brokbiznesbank, the first major lender hit as the ongoing political crisis anatagonises an already perilous economic position. Questions remain however over the bank's ownership, and therefore where the rescue cash might finally end up.

Brokbiznesbank, Ukraine's 18th largest bank by assets, announced on February 13 that it has received a UAH1bn (€82m) refinancing loan from the National Bank of Ukraine (NBU), and that it expects to be handed a second similar chunk of cash. The announcement was made by deputy chairman of the supervisory board Boris Tymonkin.

The bank's "elder statesman" and former head of Unicredit's local unit, Tymonkin said the loan is collateralised by "some securities we bought." Brokbiznesbank is set to pay interest of around 6.5%, according to market sources.

Speculation had been swirling about the financial health of the bank ahead of the bailout. On the morning of February 11, customers had lined up outside branches across the country to withdraw funds, with bank cards no longer working at ATMs. Industry insiders told bne of the bank's failure to make payments starting late January.

The speculation around the unfortunately named Brokbiznesbank comes against a background of an ongoing slide in the value of the hryvnia, banking liquidity problems, sovereign downgrades and widespread deterioration in the economy. A bank failure, warn analysts, could mark the start of a shift to a full-blown economic crisis in Ukraine - something that has been feared since the political crisis erupted at the end of November.

Brokbiznesbank quickly denied any problems. It acknowledged hitches with payments, but claimed this was solely due to a switch from the Visa payment system to the MasterCard Worldwide payments system. Market analysts disputed that version of events however, saying it was likely Visa had frozen payment processing due to the lack of cash coverage from the bank.

Following the refinancing deal, Tymonkin stated that cooperation with Visa would now resume: "All payments that were held up will be completed and all autotellers will be filled up. Several days will be needed for this." Tymonkin said that the bank had experienced a draining of deposits due to the 'artificially heated' situation around the bank.

The bailout will be sufficient to stablise the situation, he stressed. Brokbiznesbank performs payroll services for a number of large companies and government organisations, in particular the interior ministry, and many clients hold its cards in order to draw down salaries.

"The difficulties experienced by a number of clients of Brokbizbank are purely temporary and connected to technical work on reconfiguration of the payment system," the bank said in a statement February 13. "Brokbiznesbank asks citizens to assess the situation objectively and media representatives to refrain from publishing unverified data about the financial situation at the bank.

Who's who?

However, the ownership structure at Brokbiznesbank only encourages questions. Since July, the bank has apparently been owned by 28-year-old Serhiy Kurchenko, a Kharkiv fuel trader who emerged from nowhere in late 2012 to go on a spending spree. Alongside Brokbiznesbank, he has also bought hometown football club Metalist, the Odessa Oil Refinery, the Kherson fuel transshipment port, and major news outlet Ukraine Media Holding, In December, Kurchenko-owned weekly Korrespondent named its owner as Ukraine's 7th wealthiest, with $2.4bn in assets.

At the time of the bank's acquisition, local media were reporting its poor financial condition, citing sources who had conducted due diligence for the deal. Following the change in ownership, Brokbiznesbank completed recapitalisation in December, with an infusion of UAH11.5bn. Lending by the bank however soared in parallel, pushing UAH12.4bn higher, despite the economic contraction in the country.

Kurchenko himself has made no comment on the problems at Brokbiznesbank. Tymonkin announced on February 14 that subsidiaries of Kurchenko's holding group will now place funds with Brokbiznesbank. Kurchenko's sprawling and opaque network of companies is purportedly consolidating under the umbrella of a new structure, East European Fuel-Energy Holding, its Russian acronym being Vetek.

"Vetek has recently become a shareholder of one of the leading and largest banks in Ukraine - Brokbiznesbank," the holding confirmed to bne. "This demonstrates the group's vision on not only developing its oil and gas operations, but also building the group's financial activities." However, an investigation by anti-corruption NGO Nashi Groshi indicates that neither Kurchenko nor Vetek are recognisably linked to Brokbiznesbank on paper.

Following the July purchase, Tymonkin said Vetek would hold nearly 40% of the bank, while around 20% remains with the former owners - brothers Oleksandr and Serhiy Buryak, the latter a former head of the state tax service. A further 40% or so was to be held by four financial investors apparently independent of Vetek. Most analysts however believed that this second 40% block was in actual fact also to be held by Kurchenko and/or his holding company, giving the young tycoon a total stake of 80% in the bank.

According to Brokbiznesbank disclosures, five Kharkiv companies - owning 41% of its share - delegated senior members of the management, supervisory and advisory boards, thus apparently representing the Vetek stake. But none of these firms bear any trace of either Kurchenko or Vetek. According to Nashi Groshi, they bear the hallmarks of shell companies, with apparent straw men acting as shareholders, including a nursery teacher. Information about the "independent financial investors" owning a 40% stake is entirely lacking.

Wider problems?

Even if Vetek were to be directly represented among Brokbiznesbank shareholders, this would also not lead to Kurchenko. He is not present in the Vetek shareholding structure, which instead features as 100% owner one of Kurchenko's sidekicks from his early days in Kharkiv fuel trading.

Brokbiznesbank top management however do link to Kurchenko, being the former management of an obscure Kharkiv bank, Real Bank, with which the Kharkiv businessman was closely associated - a fact confirmed to bne by a controversial business associate of Kurchenko's: Evhen Zhilin. Kurchenko himself does not acknowledge the connection and has also never featured on paper among Real Bank shareholders.

Brokbiznesbank's troubles coincide with problems at other Kurchenko projects. Construction of the Kharkiv Arena basketball stadium, a host venue for Eurobasket 2015, stalled at the end of January. Management at the time said the cessation of work was due to the extreme cold, but webcams at the site show that work has not yet been resumed despite current spring temperatures.

Ukraine had horrible experiences with bank recapitalisation in 2008-2009 as its financial system unravelled under the impact of the global financial crisis. Billions of dollars in refinancing provided to politically-connected troubled banks, such as Nadra and Rodovid, were simply stolen by shareholders and moved abroad. The banks were finally nationalised. In this context, the lack of transparency in Brokbiznesbank's ownership and operations does not inspire optimism.

The NBU meanwhile echoed Vetek in blaming the media for the problems at Brokbiznesbank: "The situation at the bank is under control. But if there is another such incident, I would prefer (media) to refrain from information attacks," the head of the central bank's credit policy department Elena Scherbakova told journalists on February 14, warning that panic-mongering would "hit across the entire financial sector".