IMF, World Bank, EBRD, U.S. support Privatbank nationalization

The decision of Ukrainian authorities to nationalize Privatbank is an important step in their efforts to safeguard financial stability, IMF Managing Director Christine Lagarde said in a Dec. 19 press release. “The IMF will continue to support Ukraine in its efforts to build strong institutions, enhance transparency, and advance structural reforms which are critical to achieve strong and sustainable economic growth,” she said.

A similar statement was released by the World Bank the same day, stating that it “welcomes the bold step taken by the central bank and the government” in taking over Privatbank and that it “will continue supporting Ukraine in its efforts to build strong institutions and advance the financial sector reforms.”

In addition to the backing of global financial institutions, Ukrainian President Poroshenko said he also drew support from U.S. Vice President Joe Biden and EBRD President Suma Chakrabarti during phone conversations on Dec. 19.

Meanwhile, Poroshenko submitted to parliament on Dec. 19 a bill that will provide full state guarantees of all individual deposits of Ukraine’s state-owned banks. The bill is targeted to reduce the outflow of deposits from state banks, the bill’s summary stated, possibly referring to the risky situation in Privatbank. Daily withdrawals from the bank is close to UAH 2 bln (about USD 75 mln), according to Oleksandr Dubilet, Privatbank’s most recent CEO. He did not specify the exact period of this outflow.

To recapitalize the bank, the government ordered the Finance Ministry to issue UAH-denominated government bonds for up to UAH 116.8 bln at a coupon rate of up to 10.5% and duration of no longer than 15 years. By the end of this week, MinFin will issue state bonds for UAH 43 bln to contribute to Privatbank’s equity, according to the government. The rest will be contributed some time later, following due diligence and some contribution of hard collateral from Privatbank’s related borrowers.

Alexander Paraschiy: The greetings of support from Ukraine’s Western partners suggest they were all aware of huge problems in Privatbank. They hint that Ukraine may receive new tranches of financial support very soon. In fact, we can expect the IMF will provide the next promised tranche of USD 1.3 bln for Ukraine in January. In our view, the only condition for the IMF’s decision on the tranche is the approval of Ukraine’s budget for 2017.

As we reported yesterday in our Ukraine Daily and a separate note, there is no good news for the holders of Privatbank Eurobonds. They are the biggest victims of Privatbank’s nationalization as their bonds will be converted into the bank’s shares, and then all the shares will be sold to the Finance Ministry for a symbolic price of UAH 1.