For the last eight years Ukrainian businesses sustained significant losses,
which directly impact the banking sector.
Liquidation proceedings were initiated for more than 70 commercial banks
during the period of last two years only.
The reason for the establishment of temporary administration in those
facilities and further liquidation of most of the banks is infringement of the
regulations of the National Bank of Ukraine and the loss of liquidity.
Few banks are exception to this trend. These banks are closed for
political reasons and have non-transparent ownership structure.
The main course of insolvency of banks is withdrawal of funds by
the banks’ owners and provision of
business credits associated with the shareholders of the banks.
As for individual loan default – it became clear that the loan
portfolios were insignificant, when compared to the stolen funds by the
shareholders.
In my opinion, the current situation is a result of total corruption in the
NBU and systematic, unpunished law violations committed by bankers.
Most of the bankers got used to the fact that NBU is “blind”
to violations.
However, using the task set by the International Monetary Fund before Valeria Gontareva, the NBU governor, to reduce the number of banks in Ukraine, banks are being liquidated one
after another. This was coursed by the longstanding disregard for laws and
inability to bring bank’s condition into compliance with the law.
The exceptions were the large banks such as Forum, VAB Bank, Delta Bank,
Nadra Bank, the Bank Finance and Credit and a number of others, which the NBU
hesitated to liquidate and delayed this process for several years despite the
conclusive knowledge about the catastrophic conditions of the banks and their
inability to fulfill their obligations.
Meanwhile owners of these banks used allowed time to withdraw funds from
financial institutions.
All of them to this day feel certain of their impunity, which is caused
by the so-called “Kolomoisky effect”.
This concept appeared with a regard to the public statements of one of the
richest people of Ukraine and the owner of the Privat group – Igor Kolomoisky
on unpunished disregard of the law. And this reference was followed by many
wealthy people in Ukraine.
The “Kolomoisky effect” led the largest commercial bank in Ukraine
– PrivatBank to go weak at the knees.
Almost 60 percent of all individuals’ deposits placed in the banking system of
Ukraine today are placed in this bank. Its services and numerous branches are
very convenient. In addition, liquidation of a large number of banks and payment
of their funds to their investors through branches of PrivatBank has
significantly increased its customer database.
However, the principle “too big to fail” in this case might not work. The
state no longer has money to maintain the liquidity of the bank. Since 2014 law
enforcement agencies are investigating the elimination of almost $1 billion
from the structure of PrivatBank.
It should also be noted that according to PrivatBank’s reports more than
95 percent of the loan portfolio is allocated in enterprises of Dnipropetrovsk Oblast where the greatest amount of the assets of Privat group is situated.
This leads to conclusion that the bank is actually lending its own business at
the expense of funds involved from its private clients.
This information is justified by the reports of PrivatBank for the last
year, where the insider lending regulations are significantly violated. Thus
for the last two quarters of 2016 PrivatBank ceased to indicate this
information in their reports at all.
Over the past two years PrivatBank implemented a practise of no-return
deposits to depositors for no good reason. A large number of PrivatBank’s
clients accounts are being blocked by the Bank in order to avoid funds
withdrawal under the guise of financial monitoring.
The problem is evident from the Bank’s rapid growth of enforcement
proceedings on recovery of funds from it. Nevertheless, PrivatBank, as
previously did Finance and Credit Bank and Zakhidinkombank trying to block the
recovery of funds using illegal restraints issued by the court. The ban on
collection of funds extends even to the NBU, which is not much in a hurry to
challenge this court ruling.
The situation at hand and the regular visits of one of the main
shareholders of PrivatBank – Kolomoisky to the Executive office of the
President and the National Bank of Ukraine in my estimation is an evidence of
serious problems at the Bank.
It should be noted that main assets of the Privat group – the oil
business is now in a difficult position with due to a large debt to the State
budget and the lack of addressing this issue out of the court.
Comparing all these facts, we can conclude that “Kolomoisky effect” and
continuous disregard of the law in the end will lead to the collapse of the
entire Private”group. This will result in a possible emergency
nationalization of PrivatBank and freezing public funds for an indefinite
period, or its irretrievable loss.
Rostislav Kravets is a senior partner with Kravets & Partners law firm in Kyiv.
