Graham Stack in Kyiv -

Delta Bank, Ukraine's fourth largest bank by assets, has been declared insolvent by the National Bank of Ukraine. Delta Bank is the biggest bank to fail since the pro-EU revolution in February 2014 and the ensuing military and economic pressure from Russia. The NBU categorises Delta Bank as of systemic importance, as it holds nearly 6% of retail deposits.

Delta's failure does not come as a surprise – depositors trying to get their money have been queuing outside its branches for months, as bne IntelliNews reported in September 2014.  Around half a million retail depositors will now have to wait to receive their deposits up to UAH200,000 from the state Deposit Guarantee Fund, Delta Bank said in a press release.

“The waiting is over, and I won't have to stand for three-four hours any more to get UAH50 paid out from my deposit,” Volodymyr Klepach, a 34 year old sales clerk, standing in line in front of Delta Bank, told bne IntelliNews on hearing the news.

Total deposit outflow from Ukrainian banks since the start of the year had reached UAH17.2bn, NBU head Valerya Gontareva said on February 28, as quoted by newswires. Official figures for January show a drop in hryvnia deposits by 2.2% on the month to UAH 357.9bn, and a fall in dollar deposits by 4% to $18.2bn.

Gontareva said at a press conference on March 3 that the NBU had considered nationalising Delta Bank, as reported by newswires, but the quality of its assets was too poor.

Hours after announcing the Delta Bank decision, the NBU said it was hiking the short-term refinancing rate to 30% from 19.5%.

Gontareva said in a press release that closing down Delta Bank was a continuation of the NBU's policy of cleaning out the banking sector. On February 6, Nadra, the 11^th largest bank, was put under administration. Over 20 banks have been closed in total since 2014, most of them small institutions.

"On March 2, the Verkhovna Rada significantly increased criminal liability of bank owners and managers for the results of their financial institutions, which is aimed at stabilising and strengthening the bank sector,” Gontareva warned in the statement.

Mysterious Delta

Questions will be asked about where the funds that Delta Bank has received since 2014 have gone. According to the NBU, Delta Bank received UAH4.15bn - at the time $0.5bn - in funding from the outgoing NBU leadership on 24 February 2014, immediately following the ousting of Viktor Yanukovych by opposition protestors - underscoring the bank's allegedly good relations to the Yanukovych administration.

Delta's press service was not available for comment.

During the Yanukovych years, Delta Bank grew from Ukraine's 35th largest bank in 2008 into its fouth largest by assets. Delta's rapid growth following the 2008-2009 global credit crunch was all the more remarkable because the bank had been originally founded as a consumer credit bank – a business that almost entirely died in 2008.

Although on paper CEO Mykola Lagun had owned the bank since its founding in 2006, it was later revealed that he held the shares on trust for oligarch Viktor Pinchuk's Icon private equity fund. Delta and Icon parted ways acrimoniously in 2009, when one of the bank's main creditors Cargill agreed a debt-to-equity swap, taking a 30% share in the bank. Icon claimed that the deal diluted their interest as secured in trust agreements with Lagun.

Whether Pinchuk was replaced after 2010 by another secret backer closer to Yanukovych is a matter of much conjecture, though Delta Bank and Lagun have always denied this. Under Yanukovych, Delta Bank reportedly benefited from liberal refinancing loans from the NBU, funding its purchase of distressed assets and exponential growth. The bank also invested in domestic debt issued by state energy company Naftogaz, regarded as a politicised market.

Market insiders regard Lagun as a very well-connected banker, having started his career as treasurer in Ukrsotsbank at the time when it was run by Valery Khoroshkovsky at the start of the century. In the first years of the Yanukovych administration, Khoroshkovsky was one of the country's most influential officials, heading Ukraine's secret service while also owning the largest TV station Inter, later becoming finance minister and deputy prime minister.