At a March 16 conference, National Bank of Ukraine Governor Valeria Gontareva said that PrivatBank’s entire corporate credit portfolio consisted of insider loans.
“We thought it was 97 percent, but it was 100,” she said during the 13th annual Dragon Capital Investment Conference in Kyiv. “We couldn’t even find this 3 percent difference.”
Gontareva’s remarks came three months after the Ukrainian government nationalized PrivatBank, the country’s largest lender in terms of assets. The bank, formerly owned by billionaire oligarch Ihor Kolomoisky, was found to have a Hr 147 billion ($5.4 billion) gap in its balance sheet at the time it was taken over.
The Ministry of Finance now runs the bank. Big Four auditor Ernst & Young is currently reviewing the bank’s books and records for a report that is scheduled to be released in April.
The bank’s nationalization gave the state 52 percent control of Ukraine’s banking sector – a monopoly position for the government.
“PrivatBank has to be reprivatized,” said European Bank for Reconstruction and Development Ukraine Eastern Europe and Caucasus Managing Director Francis Malige at the conference. “But let’s not use it as an excuse to slow down progress.”
The NBU governor made a brief pitch for PrivatBank to be sold to new investors, saying that the public audit will make the bank transparent.
“PrivatBank could be the perfect platform to build a real retail and SME business bank in Ukraine,” she said.
Succeeding Gontareva
Gontareva reportedly wants to quit as central bank governor, but has not yet done so publicly.
She said at the conference that she will only resign once a successor is found, and that she will do so with a one-month’s notice, adding that she hopes a competent successor will be found.
Although Gontareva proclaimed that the banking sector cleanup was completed following PrivatBank’s nationalization, her successor will face a host of issues to confront. Beyond preventing insider lending from metastasizing across the sector once more, the next National Bank of Ukraine chief will have to oversee a financial environment that remains hostile to any kind of long-term lending.
“That’s the real difficulty now,” Malige said. “Banks will not lend unless there is a better lending environment, a better bankruptcy law, a better business environment.”
Among the candidates floated to replace Gontareva are Raiffaisen-Aval CEO Volodymyr Lavrenchuk, former Prime Minister Arseniy Yatsenyuk and Ukreximbank CEO Oleksandr Hrytsenko.
“Lavrenchuk is seen as top of the list in terms of the techno reform crew,” wrote Bluebay Asset Management analyst Timothy Ash in a research note, adding that such an appointment would likely improve relations with the International Monetary Fund and the EBRD.
“But at this stage, I have major doubts over the administration’s commitment to stay on the IMF program,” he added.
