NBU may decide on Privatbank's future by end-2016

The National Bank of Ukraine (NBU) should decide by the year end on whether Privatbank (PRBANK), Ukraine’s biggest lender, is fulfilling its recapitalization program, NBU Head Valeria Gontareva told reporters on Dec. 8. “The verification (of the program) is ongoing but should be completed by the year end and a decision should be made,” she said.

Gontareva expects the IMF will provide its next tranche to Ukraine (USD 1.3 bln, as earlier agreed) in late January or February. She listed two key pre-conditions for the next IMF tranche. The first is approval of the state budget with a deficit agreed upon with the IMF (of no more than 3.0% of GDP). Another pre-condition from the NBU’s side is “achieving the recapitalization agreed upon with the IMF of the nation’s top 40 banks,” she said.

Alexander Paraschiy: Gontareva’s deputy told journalists on Nov. 16 that the verification of Privatbank’s fulfillment of the recapitalization program could take “a week or two.” Now we see the NBU is in big delay of that plan, which makes us more certain that the bank is in serious delay in fulfilling its recapitalization program. Therefore, we can also conclude the need for its nationalization is high.

From what Gontareva said, we also can conclude that the resolution of the Privatbank case (most likely, via nationalization) is the most critical precondition for the IMF to continue cooperation with Ukraine. This makes sense, given that Privatbank’s potential capital gap may reach UAH 150 bln (USD 6 bln), an amount comparable with what the IMF has already lent to Ukraine under its EFF program. This number is also bigger than the size of potential 2017 budget deficit (UAH 78 bln) and planned budget spending for utility subsidies dealing (UAH 51 bln  – recall the IMF officially called the improved targeting of utility subsidies as the key precondition for the next tranche).

The suggestion that the resolution of Privatbank is critical for further cooperation with the IMF (and we do not believe the bank will be bailed out by the current shareholders) increases the likelihood of its nationalization. However, the nationalization is related to huge execution risk (including the risk of the bank’s failure, which would be nightmare for the government), and the government does not look ready for such a complicated takeover. In any case, we have to admit that  the nationalization risk is higher than we earlier estimated (below 50%). Recall, the IMF also insisting that non-deposit unsecured creditors (like Eurobonds holders) of the bank should be “bailed in”. We continue to treat PRBANK Eurobonds as highly risky assets.