Ukraine’s central bank declared a top 10 bank insolvent that is majority-owned by multimillionaire Kostyantyn Zhevago and where his London-listed Ferrexpo – the nation’s largest pellet exporter – has $174 million, or 62 percent, of its deposits.
At close of
business on Sept. 17, the National Bank of Ukraine took the bank, the nation’s
10th largest by assets, into receivership after Zhevago failed to contribute
liquidity, mainly by not repaying related-party loans to the bank by selling
his non-core assets.
In a statement
released on its website, the NBU said that the majority of the bank’s assets
were tied to loans to businesses controlled by the Poltava businessman and
lawmaker, whose net worth Forbes estimates is $730 million.
Since the country
plunged into an economic crisis early last year, the banking sector, long plagued
by so-called pocket banks that function as the extended financial departments
of owner firms and often engage in connected-party lending, has seen more than
50 banks declared insolvent.
Finance &
Credit had been in trouble for the past seven months. Its rescue plan involved
recapitalization by converting shares of its largest depositors into equity
with a buyback option and liquidity injection, according to Kyiv-based
investment house Investment Capital Ukraine.
Some Hr 5.1
billion in share capital increase had been announced, Hr 2.5 billion of which
in August. And the NBU gave Hr 1.45 billion in refinancing.
More than 93 percent
of the financial institution’s depositors, about 234,000 individuals, will get
their money back from the Deposit Guarantee Fund, according to the NBU
statement. Dragon Capital estimates that the DGF will need to repay Hr12-14
billion to retail depositors.
“Considering the
current load of the DGF and its financial capabilities, we do not expect
payments to begin before the beginning of 2016,” ICU said in an emailed note on
Sept. 18.
Also of concern
are the bank’s bondholders with $100 million coming due in January 2019 as the
financial institution faces liquidation.
Because Ferrexpo
has $174 million on deposit at Finance & Credit, the rest are held
offshore, “the development clearly casts some uncertainty on the company’s
financial position,” analysts at Cantor Fitzgerald said, cited by the Financial
Times.
The main concern
is whether the London-listed company can make payments inside Ukraine in the
absence of cash and whether it can maintain normal operations.
Zhevago also is
an independent lawmaker and one of the legislature’s most truant members. Since
November he has electronically registered four out of 98 times in the session
hall as of Sept. 18.
Kyiv Post editor Mark Rachkevych can be
reached at [email protected].
