PwC loses right to audit Ukrainian banks, central bank reports

The National Bank of Ukraine (NBU) reported on July 20
it has removed PricewaterhouseCoopers Audit LLC from its register of firms
authorized to audit Ukrainian banks. The regulator based its decision on the
company’s poor audit of Privatbank (PRBANK). The NBU blames the Big Four firm
in “the verification of misrepresented financial information” of the
Privatbank, particularly the credit risk and regulatory capital reported by the
bank in 2015. The auditor’s report did not highlight the bank’s high credit
risk, “which led to the bank being declared insolvent and nationalized, with
substantial recapitalization costs borne by the state,” the NBU reported.

PwC was the auditor of Privatbank before it was nationalized
in late 2016. The firm also conducted audits of Oschadbank (OSCHAD) and
Ukreximbank (EXIMUK) up until last year.

Privatbank’s new auditor, Ernst & Young, concluded
that out of the bank’s end-2016 gross loan portfolio of UAH 228 bln, UAH 184 bln
(or 81% of loans) have been impaired, claiming it was not able to learn when
the impairment occurred. Additional loan loss provisioning of UAH 155 bln made
by the bank in late 2016 resulted in its loss for the year of UAH 176 bln.
According to the bank’s 2015 annual report, audited by PwC, impairment
provisions of the bank’s loans were just UAH 28 bln, or 13% of its gross loan
portfolio.

Alexander Paraschiy: This is a strong move from the NBU, but it was expected given the
conclusions of Privatbank’s new auditor, which raised the possibility that PwC
overlooked critical information about the true stance of the bank’s loan
portfolio and collateral. The NBU’s move casts a shadow on other firms that
have been audited by PwC, including Oschadbank, Ukreximbank, DTEK and
Metinvest. Moreover, the banks will have to change their auditor (according to
information from the NBU’s deputy head, Ukreximbank already hired another
auditing firm for 2017).