Cabinet rules to inject UAH 5.8 bln equity to Oschadbank

Ukraine’s Cabinet of Ministers adopted a decree on
Dec. 27 to increase the share capital of State Savings Bank of Ukraine
(Oschadbank, OSCHAD) by UAH 5.75 bln, according to the government’s website.
The Finance Ministry will contribute to the bank’s equity 16-year local
government bonds with a coupon rate of 9.2%, the government decided.

In other news, the epravda.com.ua news site provided
on Dec. 27 the key parameters of a leaked draft of a strategy document for
Ukraine’s state banks, which foresees improvement of corporate governance of all
the state banks, as well as an Oschadbank IPO by the end of 2021. The draft
strategy assumes Oschadbank will keep the current size of corporate loans and
will become a leader in mortgage loans in the future. The bank is also
recommended to reduce the number of its outlets to about 2,000 from 3,300
currently.

Alexander Paraschiy: With the
recently approved capital injection, the state will have invested a total UAH
14.6 bln (USD 0.53 bln) in Oschadbank’s equity in 2017. The state injection
into the bank was USD 1.67 bln over the last five years and USD 3.51 bln over
the last ten years. The latest amount is higher than the book value of the
bank’s total assets ten years ago (USD 3.29 bln). All this indicates the
inefficiency of the state’s management over the bank, as well as the
government’s strong commitment to support the bank in any situation. This again
supports our view that Oschadbank bonds’ risk is the same as sovereign risk, as
well as our bullish view on Oschadbank bonds.

Even without the approval of the strategy of state
banks, it is clear that Oschadbank requires a change in its corporate
governance practices, including the establishment of an independent supervisory
board that will make the bank independent of the government. It should also make
the bank do its best to radically improve its risk management practices. In
other words, the bank should cease to serve as a purse for power brokers and
their related businesses, whose capital gap can be always filled from the state
budget. In the current situation, there is still a risk that the bank will
demand new capital injections in the coming years.