Ukraine's PrivatBank reports record high jump in net profit amid de-nationalisation crisis

Ukraine's PrivatBank reports record high jump in net profit amid de-nationalisation crisis
Ukrainian oligarch Ihor Kolomoisky claims the state illegally nationalised Privatbank and is fighting in court to have it returned
By bne IntelliNews October 9, 2019

Ukraine's largest lender PrivatBank, nationalised in late 2016, has reported a five-fold year-on-year jump in net profit to UAH27.4bn ($1.1bn) in January-September., as a court in Kyiv delayed its verdict on whether to return the bank to its former owner. 

The result is a new record high for the bank and Ukraine’s banking system, according to the bank's statement e-mailed to bne IntelliNews on October 9.

PrivatBank's net commission income stood at UAH13.3bn and net interest income at around UAH14.7bn.

Since the bank’s nationalisation a new management team has been put in place that has been cleaning up the balance sheet. The first task was to separate out all the “fraud loans,” as the new Privatbank CFO Anna Samarina described them to bne IntelliNews in an exclusive interview in June.

The bank’s new management and former governor of the National Bank of Ukraine (NBU) Valaria Gontareva told bne IntelliNews in separate interviews that the former owners lead by oligarch Ihor Kolomoisky looted UAH200bn from the bank, or $7.6bn, not the $5.5bn that is still widely reported.

Despite threats of legal action, Kolomoisky has returned none of this money and indeed is demanding the state pay him $2bn in compensation for nationalising his bank.

While the bank has been put back into profit and is running normally, those non-performing loans (NLPs) continue to weight on the bank’s balance sheet. The Ukrainian banking sector continues to suffer from high NPL ration but as the sector as a whole has returned to profit banks have started retiring bad debt and the sector’s aggregate NPL ratio fell to below 50% for the first time. However, as Kolomoisky has returned none of the money he siphoned out of Privatbank continues to have the highest NPL ratio in the sector with 80.92% of its debt in arrears, down slightly from September last year’s 84.2%.

Kolomoisky’s case against Privatbank delayed

In the meantime Kolomoisky continues to attack the bank in court. The nationalisation of Privatbank was a condition of the International Monetary Fund (IMF) help, but Ukrainian president Volodymyr Zelenskiy continuing silence on the issue of a potential denationalisation of the bank has unsettled investors and the Fund, which left Kyiv in September without signing off on a new deal, citing worries over PrivatBank’s future and the guarantees of the central bank’s independence as the cause.

A new case brought by Kolomoisky against the bank was due to be heard on October 9, but the Kyiv Economic Court has delayed the verdict on the claim by Kolomoisky against the nationalisation of PrivatBank to October 17, the bank's legal adviser Andriy Pozhydayev told Interfax after the court concluded primary hearing on the case on October 8.

The court upcoming debates on the case will resume on October 17 announce which it is expected to deliver its ruling. According to lawyers of the National Bank of Ukraine (NBU), the court refused to open the debates to the public, which are being held behind closed doors, citing the sensitive content of banking secrets being disclosed.

In this case, the court is studying Kolomoisky’s appeal and that of Cypriot company Triantal Investments (both are former shareholders of the bank) to recognise as invalid a sales-purchase agreement between the former shareholders and the Finance Ministry concluded on December 21, 2016 that is the basis of the nationalisation.

In April, the Kyiv Administrative Court ruled upon hearing an appeal by former co-owner of the bank Ihor Kolomoisky that the procedure whereby the state participates in resolving the insolvent PrivatBank was out of compliance with applicable laws.

The same day, the court ruled for the cancellation of the NBU's resolution determining a list of related parties of PrivatBank. That resolution listed the legal entities that fell under the bank's bail-in procedure - which involved the writing down of $1.1bn of the bank’s liabilities (including $550mn in Eurobonds).

The bail-in followed the recognition of PrivatBank's insolvency and preceded its nationalization in December 2016. The court ruling was based on a claim filed by its former key shareholder, Kolomoisky, and his related entity, Triantal Investments Ltd.

The decision grants former PrivatBank shareholders the ability to reclaim their funds that were bailed in during the nationalisation, the NBU stated, stressing that it was a first-tier court ruling and therefore doesn't take immediate effect. The NBU has promised to appeal the ruling.

Kolomoisky returned to Ukraine on May 16 from Israel, ending an absence in Ukraine that began in June 2017. On May 12, another former co-owner of PrivatBank, Gennady Bogolyubov, also returned to Ukraine from Israel.