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Ukraine nationalizes Privatbank

Ukraine's government announced Dec. 18 that it decided to nationalize the country's largest lender PAO KB Privatbank at the request of the National Bank of Ukraine and the Financial Stability Council.

The Ukrainian Finance Ministry will become the sole owner of the systemically important bank, controlled to date by Ukrainian oligarch Ihor Kolomoisky, and will ensure the smooth functioning of the lender, while protecting the funds of its deposit holders.

International financial institutions are supporting and helping to coordinate the nationalization, the Ukrainian government noted. Francis Malige, the EBRD's regional head for Ukraine, told Reuters Dec. 19 that the bank could take a stake in Privatbank as early as 2017 if the recapitalization and clean-up of the lender proceed without any problems, or perhaps at a later stage if they do not.

The decision to nationalize Privatbank will ensure the protection of over 20 million clients of the bank, who will continue to have unrestricted access to their accounts, the central bank's head, Valeriya Gontareva, said Dec. 19. The bank currently operates as normal and meets obligations to its customers and partners, although the provision of services to corporate clients has been suspended for one day due to technical reasons.

The central bank decided to ask the government to nationalize Privatbank after declaring it insolvent due to its inability to implement its recapitalization program. Pointing to its imprudent lending policy, the regulator noted that the bank had a capital shortage of 148 billion Ukrainian hryvnia as of Dec. 1 and has not been complying with provision requirements for a year. Privatbank was also behind payments on its 19 billion hryvnia stabilization loans from the central bank, with the value of past-due debt amounting to 14 billion hryvnia.

Aware of their inability to comply with Privatbank's recapitalization plan, the lender's shareholders asked Ukrainian authorities to take over the bank and promised to restructure its corporate loans by July 1, 2017.

Gontareva also said the central bank is ready to provide liquidity to the lender in order to ensure payment of deposits, although she does not expect a significant outflow of funds from the bank because most of its deposits are long-term.

Ukrainian Finance Minister Oleksandr Danyliuk said that between 116.8 billion hryvnia and 148 billion hryvnia will be provided to recapitalize Privatbank, with 43 billion hryvnia to be earmarked in the first phase of the process, news agency TASS reported. The exact value of financial support will be determined based on the results of an audit.

Interfax Ukraine cited Danyliuk as saying that the central bank proposed a bail-in for the holders of Privatbank eurobonds as it perceives them to be instruments affiliated with the former owners of the nationalized lender.

As of Dec. 16, US$1 was equivalent to 26.23 Ukrainian hryvnia.