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Nationalization of PrivatBank
The nationalization of PrivatBank by the government of Ukraine, taking 100% ownership, occurred on 18 December 2016.
PrivatBank was founded in 1992 by co-founders Ihor Kolomoiskyi who is also a co-founder of the financial and industrial Privat Group, and Hennadii Boholiubov, who both controlled 92% of the bank's shares before its nationalization by the state, while Serhii Tihipko was appointed as a manager. By the moment of bank's nationalization at the end of 2016 it had become the largest private bank in Ukraine. As of today, more than 22 million customers have opened their accounts in the bank; it serves about 60% of transactions and half of payment cards issued in Ukraine, and 40% of deposits of the entire banking system are concentrated in it.
Despite the dynamic growth of the retail banking sector, the National Bank of Ukraine recorded serious problems with the capital adequacy ratio, the loan portfolio, and the institution's compliance with the standards. After the bank's stress testing had been completed, the scale of problems that threatened the firmness of the entire banking system of Ukraine became obvious. In February 2016, the bank's shareholders agreed to transform the loan portfolio of the bank (transfer the debts to the bank to transparent, working businesses with real pledges, sufficient for servicing the loans) that would consequently reduce the bank's need for capital returning PrivatBank to the 5% framework of the capital adequacy. The ex-owners failed to meet the transformation deadline and to fully implement it. In February 2015, the National Council of Reforms identified eighteen priority reform areas, including a set of measures for reforming the financial sector of Ukraine (the Programme). The main goal of the Programme was to create a financial system able to redistribute efficiently financial resources in the economy based on the development of a full-fledged competitive environment according to the standards of the EU (including ensuring the firmness and reliability of the financial sector in the long run, making the standards of regulation of solvency and liquidity of banks comply with the recommendations of the Basel Committee)
In response to the crisis in the banking sector in 2014-2015, the NBU improved the legislative and monitoring tools and conducted the diagnostic exercises of the largest banks. By the end of November 2014, the NBU retooling had been completed to identify troubled banks at an early stage.
In April 2014, the Moody's Investors Service downgraded the ratings of PrivatBank and eleven other Ukrainian banks. In August 2014, the Standard & Poor's rating agency confirmed the long-term and short-term counterparty loan ratings of PrivatBank in the CCC/C scale. The Fitch downgraded the ratings of PrivatBank from CC/C to SD as a result of the debt (issued Eurobonds) restructuring agreement that had been signed.
Along with financial sustainability gaps in many Ukrainian banks, the NBU recorded serious problems with the PrivatBank's capital adequacy ratio, the loan portfolio, and the institution's compliance with the standards.
According to the financial statements of PrivatBank, which is quoted by the Fitch, the non-performing loans (NPL's) of the financial institution (overdue for more than ninety days) amounted to 8% of gross loans at the end of the first six months, which is significantly lower than the average for the banking system of Ukraine. It was said to be the result of regular write-offs and transfer of risks connected with the Crimea as well (in Q4 2014) into an unconsolidated structure controlled by the bank's shareholders. At the same time, the loans, devaluated on an individual basis and yet undue, remained at a noticeable level of 28% of all loans from the end of 2014 to the end of H1 2015. The coverage of the NPL's and devaluated on an individual basis with reserves was at a low level of 32% at the end of H1 2015.
‘Significant levels of concentration of borrowers and sectors (the largest segment in oil trade accounted for 19% of the loans) and a significant share of foreign currency lending (43%) to borrowers who mostly do not have currency income, are additional sources of repayment risk’, the Fitch analytical materials report. ‘The capital of the bank provides an insignificant ability to absorb losses, while the profit before deductions for impairment, adjusted for accrued income that is not paid in cash, is negative (for H1 2015, according to IFRS).
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Nationalization of PrivatBank
The nationalization of PrivatBank by the government of Ukraine, taking 100% ownership, occurred on 18 December 2016.
PrivatBank was founded in 1992 by co-founders Ihor Kolomoiskyi who is also a co-founder of the financial and industrial Privat Group, and Hennadii Boholiubov, who both controlled 92% of the bank's shares before its nationalization by the state, while Serhii Tihipko was appointed as a manager. By the moment of bank's nationalization at the end of 2016 it had become the largest private bank in Ukraine. As of today, more than 22 million customers have opened their accounts in the bank; it serves about 60% of transactions and half of payment cards issued in Ukraine, and 40% of deposits of the entire banking system are concentrated in it.
Despite the dynamic growth of the retail banking sector, the National Bank of Ukraine recorded serious problems with the capital adequacy ratio, the loan portfolio, and the institution's compliance with the standards. After the bank's stress testing had been completed, the scale of problems that threatened the firmness of the entire banking system of Ukraine became obvious. In February 2016, the bank's shareholders agreed to transform the loan portfolio of the bank (transfer the debts to the bank to transparent, working businesses with real pledges, sufficient for servicing the loans) that would consequently reduce the bank's need for capital returning PrivatBank to the 5% framework of the capital adequacy. The ex-owners failed to meet the transformation deadline and to fully implement it. In February 2015, the National Council of Reforms identified eighteen priority reform areas, including a set of measures for reforming the financial sector of Ukraine (the Programme). The main goal of the Programme was to create a financial system able to redistribute efficiently financial resources in the economy based on the development of a full-fledged competitive environment according to the standards of the EU (including ensuring the firmness and reliability of the financial sector in the long run, making the standards of regulation of solvency and liquidity of banks comply with the recommendations of the Basel Committee)
In response to the crisis in the banking sector in 2014-2015, the NBU improved the legislative and monitoring tools and conducted the diagnostic exercises of the largest banks. By the end of November 2014, the NBU retooling had been completed to identify troubled banks at an early stage.
In April 2014, the Moody's Investors Service downgraded the ratings of PrivatBank and eleven other Ukrainian banks. In August 2014, the Standard & Poor's rating agency confirmed the long-term and short-term counterparty loan ratings of PrivatBank in the CCC/C scale. The Fitch downgraded the ratings of PrivatBank from CC/C to SD as a result of the debt (issued Eurobonds) restructuring agreement that had been signed.
Along with financial sustainability gaps in many Ukrainian banks, the NBU recorded serious problems with the PrivatBank's capital adequacy ratio, the loan portfolio, and the institution's compliance with the standards.
According to the financial statements of PrivatBank, which is quoted by the Fitch, the non-performing loans (NPL's) of the financial institution (overdue for more than ninety days) amounted to 8% of gross loans at the end of the first six months, which is significantly lower than the average for the banking system of Ukraine. It was said to be the result of regular write-offs and transfer of risks connected with the Crimea as well (in Q4 2014) into an unconsolidated structure controlled by the bank's shareholders. At the same time, the loans, devaluated on an individual basis and yet undue, remained at a noticeable level of 28% of all loans from the end of 2014 to the end of H1 2015. The coverage of the NPL's and devaluated on an individual basis with reserves was at a low level of 32% at the end of H1 2015.
‘Significant levels of concentration of borrowers and sectors (the largest segment in oil trade accounted for 19% of the loans) and a significant share of foreign currency lending (43%) to borrowers who mostly do not have currency income, are additional sources of repayment risk’, the Fitch analytical materials report. ‘The capital of the bank provides an insignificant ability to absorb losses, while the profit before deductions for impairment, adjusted for accrued income that is not paid in cash, is negative (for H1 2015, according to IFRS).