It’s supposed to work this way: A customer borrows money from a bank and repays it over time, with interest. It also works that way in Ukraine for at least some people – the regular folks.
But the corrosive effect of corruption has meant that, as Swedish economist Anders Aslund quipped, “the best way to rob a bank in Ukraine was to own a bank.” This was, after all, a nation that did not require the disclosure of the true beneficiary owners of a bank to even the National Bank of Ukraine, which was charged with regulating the sector, before major reforms in 2014.
Owners lent to themselves, their businesses, their friends and lawmakers with little or no intention of repaying the loans. The orgy of insider lending collapsed like all Ponzi schemes, coming to an abrupt end in 2014 after Kremlin-backed Ukrainian President Viktor Yanukovych fled the popular uprising known as the EuroMaidan Revolution.
Then the messy clean-up – which continues today – began.
Currently, less than $15 billion in non-performing loans, or NPLs, from deadbeat borrowers is still on the books of Ukraine’s banks. The staggering figure is nearly a third of the state budget and represents about 41% of the entire loan portfolio of Ukraine’s banks. Last year, the government began allowing discounted sales of NPL portfolios by state-owned banks, which are saddled with the bulk of NPLs, allowing for quicker and more transparent disposal of the distressed assets. State-owned banks were, consequently, able to reduce their bad loans to $11 billion in 2020.
According to Andriy Boytsun’s State-Owned Enterprises Weekly newsletter, “the decrease was mainly due to the write-off of distressed assets from banks’ balance sheets at the expense of reserves by over Hr 123 billion or $4.4 billion. According to the government’s recent SOB reform strategy, the goal is to reduce the share of NPLs in the state-owned banks’ loan portfolio below 20% by 2025.”
From 2014-2016, the central bank shut down half of the 180 banks, declaring them insolvent.
Taxpayers had to cover an estimated $25 billion in losses, including the spectacular $5.5 billion downfall of PrivatBank alone. PrivatBank, the nation’s largest, was taken over by the state in 2016. Lawsuits against and by former PrivatBank owners, billionaire oligarchs Ihor Kolomoisky and Hennady Boholyubov, are ongoing, as are criminal investigations. The other big state-owned banks are Oschadbank, Ukreximbank, and Urgasbank.
But the state, otherwise, has failed taxpayers and depositors.
Few were charged with bank fraud, embezzlement or related financial crimes – and none until recently. And no one has been convicted. The state has returned little of the stolen money to the state treasury. Given the poor track record in investigating and prosecuting financial crimes in Ukraine, those who made off with the billions of dollars in loans appear to be home-free.
“Ukraine’s Mountain of Bad Debt” will explore the ongoing struggle of Ukraine’s non-performing loans – those for which repayment hasn’t been made in at least three months – with a panel of experts.
The webinar, part of the Kyiv Post Legal Talks series, will take place at 4 p.m. on March 31 and be live-streamed on the Kyiv Post website, Facebook page and YouTube channel.
The discussion is being held in partnership with the Moris Group law firm.
Speakers include:
- Maryan Martynyuk, senior partner of the Moris Group law firm. He has 15 years of experience in the legal field, with more than five years as senior partner. He has been named among the best lawyers in banking and finance in Ukraine.
- Olyana Gordiyenko, chairperson of the supervisory board of Ukreximbank. She spent more than 15 years with Baker & McKenzie law firm and has more than five years of experience in policymaking, including in the area of corporate governance. Since 2020, she has been the chairperson of the supervisory board of Ukreximbank. She is also a member of the supervisory board’s non-performing loans commitee.
- Svitlana Rekrut, managing director of the Deposit Guarantee Fund. She joined in 2014 and from the very beginning was engaged in insolvent banks resolution.
- Oleksiy Sobolev, CEO at Prozorro.Sale. Before leading the transparent e-auction system PROZORRO.SALE, Sobolev worked with the Ministry of Infrastructure. He also leads the Ukrainian chapter of the global Construction Sector Transparency Initiative.
The discussion will be moderated by Kyiv Post executive director/chief editor Brian Bonner.
Some other facts:
- The volume of non-performing loans in the state sector decreased by 22%, or by Hr 87 billion to Hr 310 billion, and their share in the loan portfolio of the sector to 57.4%.
- In 2020, all state banks reduced their non-performing loan portfolios.
- In 2020, state banks restructured non-performing loans in the amount of about Hr 42 billion, reducing the amount of overdue debt by Hr 6 billion.
- The largest volume of non-performing loans of state banks is traditionally concentrated in wholesale and retail trade, production of chemicals and chemical products, food production, and metallurgical production.
- The nonperforming loans (NPL) ratio in Ukraine was 41% as of the beginning of 2021.
- In 2020, state-owned banks wrote off Hr 30.6 billion in NPLs. It allowed them to reduce the NPL ratio from 63.5% to 57.4%.
- The large NPL ratio remains a burden for the banking sector, especially for state-owned banks, which accumulated over 70% of the sector’s NPLs (PrivatBank accounts for 42%)
Read the Kyiv Post’s best coverage of the banking sector for more information:
Unpunished Bank Fraud – Feb. 14, 2020
Banker Busts – Nov. 22, 2019
Legal Quarterly – Oct. 5, 2018
Unpunished Bank Fraud – June 8, 2017
Legal Quarterly – Dec. 23, 2016
Legal Quarterly – July 1, 2016
Ukraine’s Epic Banking Disaster – July 1, 2016
