Ukraine decides to boost Privatbank equity by UAH 38.5 bln

The Cabinet of Ministers of Ukraine decided on June 23 to raise the equity of its biggest lender Privatbank (PRBANK) by UAH 38.5 bln, the National Bank of Ukraine (NBU) reported the same day. Such an increase will be enough for the bank to reach a capital adequacy ratio of 10% “even under a conservative scenario,” the NBU said. Calculations of the bank’s capital need were performed by the auditors of EY, which concluded that the bank’s book value of equity was negative at UAH 0.88 bln as of end-2016, the NBU said.

The new capital increase will occur in two stages. The government will contribute UAH 22.5 bln in the first stage, to cover capital needs that arose as a result of “fraudulent actions of the previous management on the eve of nationalization,” the NBU said. Also in the first phase, the increase will cover the newly formed provisions for the bank’s financial lease portfolio “whose quality has worsened,” the NBU reported. At the second stage, the bank’s equity will be increased by UAH 16 bln or less, provided the bank will efficiently work with the collateral that it repossessed, the NBU said. 

Privatbank was recognized insolvent on Dec. 18, 2016 and was nationalized on Dec. 21. Since Dec. 18, the bank’s share capital was increased by UAH 29.4 bln via conversion of some of its liabilities into equity (bail-in) and by UAH 116.8 bln via contribution of state bonds into equity.

Alexander Paraschiy: With this Cabinet resolution, the bank’s total equity increase since December 2016 will total UAH 185 bln, or 66% of its end-1H16 total assets. There is a risk that the government will have to contribute more to the bank’s equity in the future, should it lose upcoming court hearings against the bail-in. Interestingly, according to the legislation, an auditor had only three months (since the recognition of Privatbank as insolvent) to estimate the bank’s additional capital needs. It looks like all the parties responsible for the bank’s nationalization are late with that estimate by more than three months. Such delays may bring additional arguments for those questioning the bail-in, as well as for those questioning the bank’s entire nationalization process.