Ukraine finance minister sees many systemic problems in Privatbank

Ukrainian Finance Minister Oleksandr Danylyuk said in a May 23 television interview that he sees a lot of systemic problems in Ukraine’s leading bank Privatbank (PRBANK). “The NBU (central bank) has placed Privatbank in a very rigid framework to resolve the systemic problems that it has,” he said. “I do not want to list them. There are lot of them.” He also stated the bank is “very creative in using all means to bypass regulations.”

The media storm ignited by Danyluk’s frank assessment prompted the central bank to issue a separate press release stating that Privatbank has a satisfactory liquidity level as it has the biggest cash balance in the banking system as of now. It also stated that Privatbank has agreed to a broad three-year recapitalization program following a 2015 stress test. The NBU added that it is “continuously monitoring the bank’s operations, as well as monitoring the execution of its recapitalization program.”

Alexander Paraschiy: As the biggest bank in Ukraine (22% of total assets of the banking system), Privatbank had no ability to avoid problems inherent to Ukraine’s banking system. So its “systemic” problems are of little surprise. However, what seems to have annoyed the new finance minister (who is restricted to a very distant relationship to the private banking sector) is the bank’s attempts to avoid the regulations. We suspect the bank may be trying to avoid fulfilling its recapitalization plan, which should bother the finance ministry. Note that the NBU in its press release did not confirm that the bank is fulfilling this plan. All in all, we confirm our view on Privatbank bonds as potentially very profitable, but a highly risky investment at the same time.