Ukraine Cabinet to increase Oschadbank equity by UAH 11 bln

The Ukrainian government has decided to increase the share capital of the State Savings Bank of Ukraine (Oschadbank, OSCHAD) by UAH 11 bln, Prime Minister  Arseniy Yatsenyuk told journalists outside the weekly Cabinet meeting on Nov. 19. This will be a 60% increase in the bank’s share capital, which stood at UAH 18.3 bln as of end-September. The equity increase will add stability to the bank and will enable it to increase its lending activity, Yatsenyuk said. He disclosed no timeline for the capital increase.

Alexander Paraschiy: The news is slightly positive for the holders of OSCHAD debt paper, as it indicates the government is committed to supporting the bank. By itself, Oschadbank looks like the most reliable holder of deposits in Ukraine and one of the most active lenders this year. In particular, it increased its net loan portfolio in the local currency by 8% YTD in 9M14, compared to a -9% result for Ukraine’s entire banking system.

The bank’s large exposure to the occupied Crimea region of Ukraine (its gross loan portfolio was UAH 7.7 bln as of end-June, under IFRS) might have restricted its liquidity after it was forced to abandon its outlets there. As we understand it, the exit triggered the need for the capital increase. If new capital is added to the bank, it will be able to increase its CAR (under local standards, after the write-off of Crimean loans) to 26%-28%, compared to 23.6% as of end-September. On the flip side, we doubt the bank will be efficient in allocating the funds attracted via the capital increase.