Ukraine does not rule out capital injection to Oschadbank

Ukraine’s Finance Ministry is currently in discussion
with the central bank on the need to inject additional capital to state
Oschadbank (OSCHAD), deputy minister Oksana Markarova told journalists on Dec.
19. Some of the bank’s large clients unexpectedly stopped servicing their debt
in September, she said. Another state bank, Ukreximbank (EXIMUK), has not yet
applied for a capital increase, and MinFin has no information on such a need.

Oschadbank needs additional capital injection due to
worsened quality of loans to large business groups and impairment of collateral
under such loans, the National Bank said in its report on financial stability
released on Dec. 18. The share of NPLs among the top five borrowers of the two
banks (36% of their gross loan portfolio) was 94% as of end-1Q17, according to
the national bank.

Alexander Paraschiy: The good
news for the state banks is that Ukraine is ready to inject as much capital as
they need, which confirms our view that the banks have the same risk as the
government. Ukraine has already injected UAH 26.5 bln to the equity of
Oschadbank and UAH 22.2 bln into the equity of Ukreximbank in 2014-2017.
Regular equity injections to the banks create a moral hazard risk and prompts
further quasi-fiscal spending, but that does not affect sovereign risk much.