Cabinet submits bill to prevent Privatbank renationalization

Ukraine’s Cabinet of Ministers has submitted a draft law
on amending banking legislation, the epravda.com.ua news site reported on Dec.
11. Most notably, the bill makes impossible, both by legislative and judicial
means, to return a bank recognized as insolvent to its former owners, among
other provisions. In particular, the bill restricts the rights of the former
owners of a failed bank to only compensation from the state (in the event that
a court rules the owners’ rights were violated because the state had improperly
declared their bank to be insolvent). Such compensation is limited to the
bank’s equity adjusted for the quality of its assets, which should be verified
by an internationally recognized auditor.

All the claims of former owners against the
recognition of a bank as insolvent should be considered only by the Supreme
Court (bypassing local and appellate courts). Also, the bill stipulates that no
court ruling (recognizing as illegal a decision on a bank’s insolvency) can
lead to cancellation of a bank’s liquidation procedure, nor can it lead to the
bank’s return to the status that it had before the insolvency.

The bill also grants more rights to the central bank
in the supervision of commercial banks, including recognizing them as insolvent,
influencing bank management and shareholders, as well as providing tougher
demands on banks’ prudential requirements.

Alexander Paraschiy: The bill’s
main aim is to eliminate the risk of Privatbank returning to its former
shareholders, which is among the biggest concerns of Ukraine’s western
financial partners. Also, it complicates and limits any compensation that the
former shareholders might demand.

On top of that, the bill is aimed at unblocking the
liquidation procedures of some insolvent banks, which will improve the
financial stance of the Deposit Guarantee Fund.

Therefore, it seems that the bill’s adoption is
among the preconditions for Ukraine to sign a new deal with the IMF. The timing
of the bill’s approval is not clear yet. Taking into account that Ukraine’s
parliament is going to work all next week, it’s likely this bill will be
approved by the end of 2019.