The Ukrainian authorities have issued domestic government bonds in the amount of UAH22.5bn (€759mn) in exchange for the bank’s shares as part of the additional capitalisation of nationalised PrivatBank, the country's Finance Ministry said on July 12.

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 National Bank of Ukraine (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 central bank said in June.

"The decision on additional capitalisation in the total amount of UAH38.5bn  (€1.3bn) was made based on the proposal of the NBU, taking into account the recommendations of the expert-analytical council on state participation in the capital of banks and the conclusion of independent auditor EY," the ministry's statement reads. "The auditor's conclusion attests that the bank was in a worse condition than it was considered at the moment of the bank's transfer into state ownership."

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.