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PrivatBank branch in Kiev, Ukraine
The country’s government announced in a statement yesterday that it will take PrivatBank into 100% state ownership, but made no mention of the cost to the state budget.
“Private shareholders of PrivatBank had appealed to the government with a proposal that the government, acting in the interests of the bank’s clients, become its absolute owner,” the statement said.
It added that the government would deliver a “smooth transition”, which will guarantee clients’ money and ensure that operations remain stable and continue as normal.
“The government believes that its responsible decision saved PrivatBank and the entire banking system.”
The bank, which holds over 35% of all private deposits in Ukraine, looks set to miss year-end recapitalisation targets set by the International Monetary Fund as part of Ukraine’s $17.5bn bailout deal with the Washington-based lender.
PrivatBank has also been beset by rumours of high debt and insider lending. Speculation around these and a probable nationalisation saw the bank’s bonds fall by nearly 50% last month.
In November, ratings agency Fitch noted that the bank has a high proportion of bad loans (12% of total loans are non-performing).
The Kyiv Post also reported that in September the bank had failed a stress test, which was delivered alongside a three-year capitalisation plan aimed at closing a billion-dollar hole created by bad loans doled out to insiders.
Speaking this morning, Ukrainian president Petro Poroshenko said that after years of accumulating problems, PrivatBank was hard hit by conflict in the country and ensuing economic turmoil.
A requirement to close insolvent lenders was included in Ukraine’s deal with the IMF, but the bank is considered too big to fail.
Suma Chakrabarti, president of the European Bank for Reconstruction and Development, said the EBRD supports Ukraine’s decision.
“The long-term stability of PrivatBank, the largest bank in Ukraine, is crucial to the country’s economic health,” he said. “We believe the decision to nationalise it is the right one and have offered our expertise to the authorities,” he said.
Fancis Malige, the EBRD’s managing director of Eastern Europe and the Caucasus, agreed that a “systematic bank of this magnitude could not be allowed to fail”.
“Nationalisation of systemic banks allowed many developed countries [to] protect their economies during the global financial crisis and it is the right way forward for Ukraine now
