VAB Bank declared insolvent by Ukraine state regulator

The board of the National Bank of Ukraine (NBU) approved a resolution on Nov. 20 to recognize VAB Bank (VABANK) as insolvent, according to its Nov. 21 release. The NBU deputy chairman attributed the decision to the fact that “no sufficient resources are available for the bank’s recapitalization,” according to the release. The Ukrainian government will introduce an interim administration in VAB Bank as of Nov. 21.

The capital increase initiative offered earlier by the bank’s owners was insufficient to maintain the bank’s solvency, the NBU said. VAB Bank does not qualify for criteria that would enable it to count on the state’s involvement in its recapitalization, the NBU said, citing international practice in which the state does not participate in the equity of those banks that have a large portion of related-party loans.

Alexander Paraschiy: The decision diminishes the likelihood that the bank will smoothly service its Eurobond and harms the reputation of the bank’s 90% owner, Oleg Bakhmatyuk. It may also have negative consequences on Bakhmatyuk’s other businesses, including Ukrlandfarming (ULF, UKRLAN) and related egg producer Avangardco (AVINPU, AVGR LI).

In particular, VAB Bank’s loans in the total debt portfolio of ULF amounted to about USD 100 mln as of end-1H14, as can be concluded from ULF accounts. ULF clearly counted on the rollover of this loan once it matures (we do not know the date of its exact maturity). Now that an interim administration will enter the bank, it won’t be able to roll over this loan to ULF, which might increase the liquidity gap of Ukrlandfarming by about USD 100 mln.