Ukrainian subsidiary of Russian VTB Bank declared insolvent

The board of directors of the National Bank of Ukraine
ruled on Nov. 27 to declare insolvent VTB Bank, a Ukrainian subsidiary of the
Russian state-owned bank. The NBU clarified that due to liquidity issues in
VTB-Ukraine, the regulator recognized it to be a problem bank on Nov. 13 and
urged it to take measures to repair the situation, which the bank failed to do.
The NBU estimates that the State Deposit Guarantee Fund, which will take control
over VTB-Ukraine on Nov. 18, will have to repay UAH 0.9 bln in guaranteed
household deposits. The regulator also stressed that the bank’s share in total
assets of Ukraine’s system is just 0.6%, hinting that its exit won’t have a
material effect on the system.

Commenting on the situation around the bank, Russian
parent VTB Group (VTBR RX) stated the morning of Nov. 27 that VTB-Ukraine’s
poor condition is the result of a “raider attack” by Igor Kolomoisky that “is
being silently backed” by the Ukrainian government. Ukraine’s VTB Bank “was
established based on Mriya Bank,” the group said, adding that it bought
Mriya from Petro Poroshenko, the  current Ukrainian president, in 2006.
“VTB Group reserves the right to appeal to an international court to demand that
Mr. Poroshenko repay the amount spent on purchasing the bank,” its statement
said.

Recall, VTB-Ukraine, along with other banks with a
Russian government stake (Sberbank-Ukraine and Prominvestbank) were targeted by
Ukrainian sanctions in March 2017 that limited capital outflow from the banks
to parent entities. On top of that, in September 2018, a Kyiv court ruled
to freeze some of the assets of the three banks and prohibited them from
alienating any fixed assets they hold. The ruling was made at the request of
companies related to Kolomoisky, which earlier won litigation in international
courts against the Russian government.

Alexander Paraschiy: VTB-Ukraine
has become the first victim of Russia’s latest aggression against Ukraine, as
well as its own aggressive lending policy in the past. Its business has shrunk
in Ukraine since 2014, and so was its ability to generate cash flow. For
instance, having generated cash-interest income of USD 500 mln in 2012, in 9M18
it generated only USD 1.2 mln – mainly because all of its loan portfolio turned
out to be bad. The only thing that allowed the bank to remain afloat in recent
months was its selling of seized collateral – activity that had been prohibited
by a Kyiv court in September. As the bank was unable to appeal the ruling quick
enough, it sharply ran out of liquidity.

The situation in two other Ukrainian subsidiaries
of Russian state banks is not that critical, but their prospects in Ukraine are
also foggy. They have some more time to gradually scale down their operations
or be sold to a third party.