Schemes of withdrawing money from PrivatBank before its nationalization

Author : Olena Holubeva

Source : 112 Ukraine

Before nationalization, PrivatBank issued loans to inactive companies with some signs of default
09:28, 5 July 2017

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Before nationalization, in October-November 2016, PrivatBank issued loans to companies that had virtually no operating activities, had a negative financial condition and were founded less than one year ago. For example, 4 billion UAH were issued to the company D., registered in July 2016 by one individual with income (three months before the loan was issued) in the amount of 7,700 UAH. Another 4.6 billion UAH were issued to the company B., registered in February 2016. The financial condition was assessed as the sixth class (primary signs of default).

The companies received several billion UAH at an interest rate of 10.5%, while the bank's credit committee approved a rate of 34%. In accordance with the law, we are talking about the Economic Code, the Law on Banks and Banking Activities. The bank has no right to issue loans cheaper than it attracts resources. In October-November, PrivatBank attracted refinancing loans of the National Bank of Ukraine at 22%, hryvnia deposits of individuals under 19%, hryvnia deposits of legal entities at 14.2%.

Related: Talks with Privatbank ex-owners continue

Borrowers were not checked for cohesion, and the financial condition of most of them was artificially overstated. When issuing loans, both normative documents of the National Bank of Ukraine and internal documents of the bank were violated. All 36 loans were signed for issuance by the head of the board with excess of authority, which he had in accordance with the documents of the bank. The National Bank has got inaccurate data regarding the size of the required reserve and the amount of uncovered credit risk on loans, and accordingly the real value of the regulatory capital of the bank was distorted.

The goods, property rights to which played a role of loans security, for example, were gasoline in the amount that would have been enough for two years of full work of the whole country. Also manganese ore, which is mainly supplied to the Chinese market. it was planned to bring it to Ukraine in such a way that at least to cover three-year requirement of all ferroalloy plants. At the same time, it turned out that companies, which took loans for the import of these goods, did not really have such intentions. All issued funds were not directed to the operational activities of companies, as was said in the text of the contracts. They were fully paid within one or two days after receiving the loan to repay the body and interest that had previously been given to 193 companies, related to the bank. It was the top of the pyramid, however such a practice existed before.

Related: Ukraine's Prosecutor General's Office initiates case for Privatbank’s insolvency, - Shlapak

More than half of these 193 companies had a real security deposit. And they had an indexed interest rate. Loans were issued to them in 2014-2015, the dollar rate was unstable, so the rate was 12-12.5%, it was tied to the dollar rate. When the loan was supposed to be paid, the client had to pay an indexed reward too. When these loans (of 193 companies) were repaid by 36 borrowers, the right to real collateral that secured loans was lost.

Related: PrivatBank Chairman Shlapak resigns

In addition, on the same day, November 23, 2016, the credit committee of the bank indexed the interest rate for three-quarters of borrowers. Loss of the bank was about 20 billion USD. To repay loans of 193 legal entities, the funds were not enough. 15 billion UAH were enough. And then the bank took some property on its balance: 248 gas stations, 120 oil depots worth about 15 billion UAH.

"Cyprus loan portfolio". These are 22 borrowers with the loan amount 14.7 billion UAH in equivalent and 6.8% USD rate. There are a lot of problems here - only one borrower serves loans. The rest either are in full default and have stopped servicing, or have very serious delinquencies and are in a step from a default. Second: no pledge for these loans is registered under the rules of Cyprus legislation, as it should be. That is why, when checking this portfolio, we applied to the Cyprus court and are now working to secure the collateral. And also began negotiations with the owners of collateral property, which is in Cyprus, France, Romania, and Georgia.

Related: Privatbank ex-owners fail to fulfill commitments in time, - National Bank

The portfolio of corporate related loans (124 borrowers in the amount of 36 billion UAH, the rate from 1% to 58%) is characterized by low, below the market interest rates on loans, non-standard payment terms for the bank, with the lack of solid collateral.

Systemic irregularities in the issuance of loans were detected, committed by the former management, and the case is being prepared to go to Ukraine’s Prosecutor General. It has opened criminal cases under articles 218 and 220 of the Criminal Code "Bringing the bank to insolvency." Now 9 criminal cases have been opened, and the work continues.

Related: National Bank to spend $1.1 billion more on capital increase of PrivatBank, — Gontareva

According to the lawsuits of PrivatBank, as of June 30, 121 961 cases were pending - decisions were made on 74 261. 10 billion UAH of decisions were in favor of the bank, and 2 billion UAH were not in favor of the bank. The total amount of claims is 23.8 billion UAH.  Bukovel complex was transferred to the bank's balance sheet as a mortgage. "PrivatBank" owns a third of the complex (its best part- cottages, lifts) - two thirds belong to the companies ofv former owners.

Related: Cabinet of Ministers decides to recapitalize PrivatBank for $1.5 billion

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