Privatbank reports UAH 135 bln losses due to heavy provisions in 2016

Ukraine’s leading financial institution Privatbank (PRBANK) reported UAH 135.3 bln (about USD 5.0 bln) of losses in 2016, down from a profit of UAH 0.2 bln a year ago. A key factor that resulted in such losses was the UAH 144.4 bln in provisions on all its assets, including UAH 132.0 bln in provisioning of its loan portfolio. Most of the provisions happen in 4Q16, which resulted in provisioning of 81% of the bank’s total corporate loan portfolio as of year-end (up from 12% as of end-3Q16). As a result, its net loan portfolio decreased by 70% qoq to UAH 54.7 bln as of end-2016. The losses, which the bank recorded after its nationalization, were covered by a UAH 107.0 bln contribution into its equity from the government (which should have been made in the form of state bonds) and UAH 29.4 bln of conversion of the bank’s liabilities into equity (bail-in).

As a result of the bail-in, the bank decreased its amount of debt securities outstanding by USD 395 mln qoq (or 97% qoq to USD 10.5 mln) – this amount should include two Eurobond issues maturing in 2018 (USD 335 mln face value). It also decreased its subordinated debt by 99% (or USD 289 mln) qoq to USD 3.6 mln equivalent. As the total amount of the bail-in was UAH 29.4 bln, the bank is likely to also have converted into equity UAH 11.7 bln in deposits of related parties. As a result of the bail-in and deposit outflow, Privabank’s deposit base decreased by UAH 14.9 bln (or 8%) qoq to UAH 180.9 bln.

The bank’s total assets decreased 19% qoq to UAH 220.0 bln as of end-2016.

Alexander Paraschiy: What we see is a result of the heavy changes of the bank’s balance sheet, which was a result of the provisioning of all the related party loans, and the bank’s bailout at the cost of the government, some related parties, and unsecured lenders. The bank’s end-2016 balance sheet raises some questions. In particular, we wonder what are the liabilities left as debt securities and subordinated loans for USD 14.1 mln which were not bailed in by the bank. This may suggest the government inaccurately executed the bail-in. We also cannot observe the entire amount of state bonds which should have been contributed to the bank in late December. In particular, we recall that the government contributed UAH 107 bln in state securities to the bank, of which the NBU purchased UAH 25.8 bln in the last days of December. This should have resulted in about an UAH 81.2 bln increase of debt securities in the bank’s assets, while we can observe only a securities portfolio of UAH 64.4 bln (+UAH 62.5 bln qoq) as of end-2016. We see the bank’s reporting did not become more transparent as it went into the state’s hands.