PrivatBank, the largest bank in Ukraine, famous for its controversial history, published record profits of Hr 11.67 billion, or $417 million in 2018.
By comparison, the bank made a loss of Hr 22.9 billion, or $832 million, in 2017.
“This is the best result since the economic crisis and the war in Ukraine started,” said Petr Krumphanzl, chairman of the management board and CEO at PrivatBank, during a briefing at the bank’s headquarters in Dnipro on Jan. 22.
Two years ago, on Dec. 19 2016, PrivatBank was nationalized with a $5.5 billion hole in its balances due to the alleged money-laundering of its previous owners, two of the richest men in Ukraine – Ihor Kolomoisky and Gennadiy Bogolyubov.
Galyna Pakhachuk, chief resolution and treasury officer at PrivatBank, thinks that profits could have been even higher in 2018, as much as Hr 16-18 billion, or $571-640 million more, had not been for the earlier creation of so-called toxic loans of the previous bank owners.
At the same time, in terms of profitability, PrivatBank ranks first in the banking system of Ukraine, according to Ganna Samarina, deputy chairman of the board.
“For 11 months of 2018, PrivatBank’s profits formed 35 percent of the total profitability of the banking system of Ukraine,” said Samarina.
Despite political uncertainty linked to the upcoming elections, which can entail risks and uncertainty for the banking sector, Krumphanzl forecasts the bank’s profits will reach at least Hr 9 billion, or $320 million, by the end of this year.
“If pressure from the new government on the supervisory board begins, we are ready to defend ourselves,” said Krumphanzl. “The situation in the country might change, but the bank will operate as a business and won’t enter politics in any way.”
Starving for privatization
By the end of 2021, the largest bank in Ukraine will be privatized, according to Engin Akchakocha, head of the PrivatBank’s supervisory board, who says that this position is clearly visible in the bank’s general strategy.
According to Oleh Serheyev, management board member, state-owned PrivatBank, Oschadbank, Ukreximbank, Ugrgasbank together have 56 percent of the total banking market in Ukraine and such a figure is too big for the country.
“The state does not need these assets. (PrivatBank) should be a business that works independently. The state should be engaged more in the army, medicine, but not the banking sector,” said Oleh Serheyev, a management board member.
One of the greatest fears in Ukraine is that PrivatBank will be again privatized by the likes of Kolomoisky or another Ukrainian oligarch such as Rinat Akhmetov. But such concerns are baseless, according to Serheyev.
“Society has already passed the stage of wild capitalization. To roll back and give the bank for three pennies – we will be complete idiots in that case, if we allow it,” said Serheyev.
However, upon questioning from reporters, Krumphanzl didn’t give an answer as to how many years it will take to pay back $5.5 billion of taxpayers’ money injected by the government by the bank purchasing government bonds. He said he’s pretty sure, however, that with privatization, the bank will be able to return the money to the state even faster.
PrivatBank court battles
PrivatBank continues to sue its former owners, in a battle that seems to never end, but the results are still hardly exciting.
However, Krumphanzl doesn’t think that PrivatBank lost its recent case in London’s High Court on Dec. 4, 2018 – he’s sure that the bank has real chances to recover its money from the former owners, with the help of international institutions and positive court decisions.
“In a London court, it was decided that the judges of England do not have the rights of jurisdiction for this case. We disagree with this and in December filed an appeal. During the first six months of 2019, this appeal must be resolved,” said Krumphanzl.
Thanks to the painful difficulties in recovering funds lent as part of so-called toxic loans, the bank has learned a lesson and adjusted the long-term credit strategy of the bank.
“We’re suing (former owners) wherever possible. And we will never go into big loans again,” said Pakhachuk.
However, even inside PrivatBank top management opinions on how much money should be returned vary in billions of dollars.
Pakhachuk doesn’t agree with the figure of $5.5 billion. She has her own opinion on how much former owners owe the bank.
“My total check is about $7 billion. To $5.5 billion I added a gap in liquidity – the currency was attracted (by previous owners), but it is not existing now. It was withdrawn through loans,” said Pakhachuk.
She was totally shocked with the numbers in the bank’s reports before it was nationalized and didn’t understand how it was possible at all.
“I looked at the numbers and simply could not believe my eyes. In most of Ukraine’s banks this has never happened before,” Pakhachuk told the Kyiv Post.
