Ukraine’s largest private bank in terms of depositors, PrivatBank, was nationalized just before midnight on Dec. 19. Ukraine’s Cabinet of Ministers issued the long awaited statement on their website at 11.30 pm, stating that the Ministry of Finance now owns 100 percent of PrivatBank’s shares.
The bank will now be managed by Oleksandr Shlapak, Ukraine’s former Finance Minister (February -December 2014.), who will be working with a Western firm to run the institution. After the bank will be stabilized the state plans to sell it, Ukraine’s Finance Minister Oleksandr Danylyuk said at a press briefing on Dec. 19.
Rumors of PrivatBank’s nationalization have been circulating for more than a year but peaked last week after the NBU all but verified market speculation in a Dec. 13 report, saying that insider loans had left at least a Hr 89 billion ($3.39 billion) hole in its ledger.
What next?
In a press briefing on Dec. 19 Danylyuk reassured depositors that their all their money is protected by the state. National Bank Governor Valeriya Gontareva, who is said to have agreed to an IMF ultimatum to take over the bank, told depositors that their bank cards would now work at Ukraine’s state bank Oschadbank.
“From today, the bank belongs to the state, by the Ministry of Finance,” said Danylyuk.
Danylyuk added that the only visible consequence for PrivatBank clients would be a one-day freeze on financial operations for legal entities that use the bank, ending on Dec. 20. All other operations will be accessible, said the Minister of Finance. He added that the nationalization of PrivatBank had been incorporated into the budget for 2017.
The recapitalization of Hr 148 billion ($5.6 billion) will be done in several stages. For the first stage, the Finance Ministry will issue Hr 43 billion ($1.6 billion) worth of treasury bonds.
Oligarch Kolomoisky
The private jet of PrivatBank’s former owner Ihor Kolomoisky’s was tracked leaving the country last night after the announcement. Kolomoisky has long used his control of the bank as political leverage. The bank’s nationalization raises questions of what effect this will have on his power and what he might do next.
No mention was made at the press briefing on Dec. 19 that Kolomoisky or Gennadiy Bogolyubov, or any of PrivatBank’s management would be investigated in relation to the bank’s financial state.
“It looks like he was forgiven for Hr 148 billion ($5.6 billion.) But it’s unlikely that this is the end of story. I think Kolomoisky has not given up,” Oleksandr Paraschiy, director of Concorde Capital, told the Kyiv Post.
The bank’s previous owners still control the country’s online payment system Privat24 which is not regulated by the NBU. Some say this fact could be used by Kolomoisky. In a press briefing on Dec. 19, Gontareva said that the regulator has no position about Privat24 system yet, and advised to use online systems from other banks.
The European Bank for Reconstruction and Development issued a statement supporting the move, saying that “a respected Western firm that we at the EBRD know well will be advising the authorities in the bank’s management.”
“We have already offered the government our expertise,” the bank added.
Why now?
Gontareva said at the press briefing on Dec.19, that on Dec. 18, the bank was declared insolvent after PrivatBank failed recapitalization request from the regulator, and then the NBU appealed to the government with “the suggestion to transfer this important systemic bank to state ownership.”
On April 1 of 2015, the deficit of the bank was Hr 113 billion ($4.3 billion), and was planned to be covered by the plan of recapitalization, Gontareva said at the briefing. As the program was failed, the deficit has deepen to Hr 148 billion ($5.6 billion) over 20 months.
Danylyuk also claimed that the owners of the bank contacted the NBU of their own accord and asked for capital and agreed to cooperate on the process of nationalization. The shareholders of PrivatBank sent a letter to the Cabinet of Ministers, asking the state to enter the bank with state shares, Gontareva said.
Danylyuk said that the decision on nationalization is “important” in terms of cooperation with International Monetary Fund and approaching of a next tranche.
“As a symbol of stability,” said Danylyuk, the NBU has transferred its payroll to PrivatBank.
The team of 100 people from NBU and Deposit Guarantee Fund started working at the PrivatBank from Dec.19 in Dnipro, where headquarter of PrivatBank is located.
“We are convinced that transferring the bank to the state ownership is the sole possibility to keep depositors’ money and rescue the financial system,” Gontareva said.
Assuring in stability, she said that the regulator expects no deposit outflow and influence on the currency market. “We have Hr 15 billion in reserves that we can use to cover intervention and meet our obligations, in case of necessity,” she said.
Dmytro Dubilet, IT director at PrivatBank and son of its CEO Oleksandr Dubilet, wrote on Facebook that the bank’s clients should not worry.
“I do not think that customers and employees will feel much of a difference in the work of the bank,” wrote Dubilet.
Though Dubilet noted a change in management and said he would be standing down, his post hinted that PrivatBank’s former managers would retain some control over the bank.
“PrivatBank – is our child.. Even if the child is now going to live in a new family, we will still see to it that he is well-fed, healthy, and wears socks.”
Dubilet also said that he and PrivatBank’s management were surprised by the nationalization.
Though given that people familiar with the nationalization said that the Dubilet family was directly involved in negotiations over nationalizing the bank, coupled with public statements by government officials and recent legislative changes pointing towards nationalization, Dubilet’s statement seems unlikely.
