How could Ukraine sell PrivatBank profitably?

Author : Oleksiy Kushch

Source : 112 Ukraine

Lessons from the foreign states for selling a big state bank, previously owned by oligarch Kolomoisky
14:44, 15 June 2018

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National Bank has filed new lawsuits against Igor Kolomoisky in the courts of Switzerland and Ukraine. The subject of claims is the repayment of refinancing loans, which PrivatBank took from the National Bank (NBU) in 2008-2015. The amount of debt is 0,4 billion USD. As you know, the former shareholder of the bank provided personal guarantees for repayment of these borrowed funds. Now the claims have been submitted to the court of the first instance in Geneva and to the Economic Court of Dnipropetrovsk region.

Let us move on to those issues that flow smoothly from this legal "disposition". Firstly, the former head of the National Bank has noted: "The bank wants us to repay this refinancing, but then they will save Kolomoisky from of all guarantees, and we will lose these pledges, so we do not want PrivatBank to pay us back." At the moment, PrivatBank should pay the National Bank more than 0,41 billion USD. The amount is rather large even in view of the devaluation of hryvnia in recent years. And given the problems that arose in the business system of a well-known group, it is not a double one.  

Related: Major privatization in Ukraine: There is no turning back

In these circumstances, the phrase of the former head is a unique gift to the respondent, because his lawyers will have the right to state that the bank does not specifically fulfill its obligations to return the refinancing credits to the NBU. Moreover, it does not fulfill them, perhaps, at the decree of the regulator, who does not want to end the game with the former shareholder.

Question two. After the guarantor fulfills the borrower's obligations to him, all the rights that the creditor previously had before would be transferred to him. Suppose, the former owner would have some twice removed great-grandfather, who, without knowing why has been always paying back the debts of those for whom he was entrusted, and he will pay off under refinancing contracts. What then? Kolomoisky receives the right to claim 0,4 billion USD. And if the bank does not give the money, he can easily transfer the case to the executive service and collect the debt forcibly, writing off the money directly from the correspondent account. And in the event that the bank does not have such money, it is very realistic to demand that it be declared insolvent. I remember that the transfer only 0,03 billion USD to the executive service in the case of the Surkis family caused a huge ATM "queue". You can imagine what a carnival will arise in the bank's branches if they try to collect 0,4 billion USD from it as a recourse claim.

Thus, an obvious answer arises. NBU does not expect that the former shareholder will repay the bank's debts on refinancing loans. This is just the case where the process is interesting, not the result. After all, under the noise of legal proceedings as an interim measure, you can demand that you arrest the assets and assets of the former shareholder of the bank, and significantly impair the undisturbed Dolce Vita. Most likely, the real reason lies in a completely different plane, because if someone in Ukraine is trying to get a lot of money, then the figurant bet the wrong "horse", or rather the wrong candidate. More precisely, a female candidate.  

Related: Privatization: Why does Ukraine need it?

Unfortunately, this whole struggle does not bring us closer to resolving the "Privat case". At the moment it is a bank with assets of 18,3 billion USD, of which 5,5 billion are bonds, contributed to the authorized capital by the state.

For the period from the beginning of nationalization, bank’s loan portfolio has undergone fantastic metamorphoses. If as of October 1, 2016, the loan portfolio of the bank consisted of 6 billion USD, and the level of reserves did not exceed 0,8 billion USD, then as of May 1 of this year only 0,3 billion USD has left. In fact, the bank has turned into a jug from the tavern, in which the heroes of the Pinocchio fairy tale decided to throw off the bones they had eaten.

As for loans to individuals, they even grew: from 0,9 billion USD  to 1,2 billion USD, and the reserves have almost doubled - up to 0,7 billion. It turns out that they continued to lend and reserve after nationalization. The nationalized bank "poured" 0,3 billion USD in the retail lending of the population (if you take a balanced indicator). The quality of this loan portfolio is still subject to further assessment.

Related: High Court of Justice to hold hearing on PrivatBank case against Kolomoisky, Boholiubov on Feb. 27

The most surprising is that against the backdrop of a large-scale information wave and constant news that the bank received bought for one hryvnia is almost an empty walnut, people carry their money into it: the size of deposits of the population since the moment of nationalization has increased from 6 billion USD up to 6,5 billion. That is, for a year and a half, our citizens have "warmed it up" by 0,5 billion USD. What can I say? The Ukrainian land is rich in sages and kind people. The most noteworthy is that the fate of the law on 100% state guarantees of household deposits in state-owned banks is still unknown. This legislative act was adopted by the parliament and handed over to the president for signature. And that is all. No sign, no veto.

What is noteworthy: PrivatBank is the largest state bank, and it has the most "unreasoned place" in the Ministry of Finance's strategy for reforming the public sector in the banking system. It is like they want to sell, but only the date of privatization is postponed.

Although, as the experience of other countries shows, the problem of nationalized system banks should be started from the first year of nationalization, because with every year it would be more problematic to spend the money from the budget. And finding a niche for the former giant is becoming increasingly difficult.

The experience of Latvian bankers in terms of selling distressed assets, recovering compensation from former bank owners, and the nationalization model used in Latvia can be used in Ukraine. As you know, Parex Banka was nationalized in 2008 by the decision of the Latvian government. In 2010, it was restructured with the allocation of two new financial institutions: Parex Banka, where the problematic assets remained, and Citadele, which received liquid assets and a client base.

Related: Finance Ministry suggests sale of Ukrgazbank and Privatbank in 2020 and 2022 respectively

In the case of PrivatBank, this scheme might look something like this. The bank's payment service is transferred to a separate financial structure and privatized (for some good money). The buyers can be found in the near future. There is a repository of distressed assets under the bank's brand: it is necessary to continue litigation with former shareholders, and it will help the state to support its claims in the courts, including international ones. This, in fact, is a sleeping shell, which requires minimal maintenance costs, but which fulfills the role of legal successor. And all working assets together with its branches, as well as the amounts of state capitalization in the form of government bonds, are transferred to a new bank, which receives a new name, rebranding and starts operations from scratch in a separate operating niche. It is most likely that such a niche direction will be lending to small and medium-sized businesses, plus a mortgage. And no big loans in favor of FIGs, even state ones. Such a bank can really be profitable to sell in some 2-3 years after the start of the promotion. Yes, the question is whether the present authorities need everything to be so simple and smooth. Where is the "catch" here? It is unclear ... As a rule, this is what irritates me in our country most of all, especially in pro-government offices.

Related: Privatbank should be sold within the next five years - Finance Minister

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