Ukraine declares Diamantbank insolvent

The National Bank of Ukraine (NBU) declared the nation’s 24th-biggest lender Diamantbank insolvent, according to its press release of April 24. The reason cited was the bank failed to fulfill the requirement of reaching a capital adequacy ratio of 5% as of April 1, as was demanded by the NBU for all banks ranked 21-40 by assets. The NBU confirmed that the bank’s management and owners fulfilled their agreed upon recapitalization plan in 2016, which included repayment of related party loans, increased amounts of collateral under loans and provision of financial support to the bank.

The bank’s CEO Oleg Khodachuk linked the insolvency recognition to the recent detention of Mykola Martynenko, a former MP who was suspected by the Anti-Corruption Prosecution Office of inflicting significant financial damage to the state. He said the bank “was implementing its recapitazalition program in full, as of the beginning of the year.” Khodachuk recognized that shareholders did not manage to meet capital requirements as of April 1, but said the bank was given additional time to complete its capital increase. Martynenko’s detention “led to panic among clients” and triggered the bank’s insolvency, he said.

Martynenko, officially controlling a 2.48% stake, is widely recognized as one of Diamantbank’s controlling shareholders. He was detained on April 20 and released two days later on the pledges of the members of the People’s Front political party, which he is widely recognized as having sponsored.

Alexander Paraschiy: There is little surprise in the bank being declared insolvent, as rumors spread for a long time that it had been in the list of the so-called “problematic” banks. Nonetheless, it’s hard to see any link between the bank’s insolvency (a possible “panic”) and the detention of  Martynenko, who is even not in the official list of the bank’s significant shareholders.

But there is still some inconsistency in the NBU’s information about the reason for Diamantbank being declared insolvent. Firstly, it’s not clear why it waited more than three weeks from the April 1 deadline (as mentioned in the NBU press release) to declare insolvency. Secondly, the mentioned NBU deadline of April 1 does not correspond with the information in the recent IMF memorandum, where it’s stated that the deadline to reach 5% CAR for the second set of 20 banks was shifted to end-April. All this may create a pretext for Martynenko and his allies to claim political motivations behind the NBU decision, although we believe the bank was closed for financial failure.