The National Bank of Ukraine Suggests Injecting Additional UAH 38.5 Billion into CB PRIVATBANK PJSC as Part of the Recapitalization
The National Bank of Ukraine has submitted a proposal to the Cabinet of
Ministers of Ukraine to inject additional UAH 38.5 billion into CB
PRIVATBANK PJSC as part of the recapitalization. As the Ministry of Finance has informed, today
at the ad-hoc meeting the Cabinet of Ministers has made a corresponding
decision based on the NBU’s proposal to inject this additional amount of capital into CB PRIVATBANK PJSC.
The audit of the bank’s annual financial statements for 2016 carried out by
Ernst and Young (EY) in accordance with international standards estimated that
as at 31 December 2016 CB PRIVATBANK PJSC’s negative capital position stood at
UAH "-882" million and its regulatory capital amounted to UAH "-2.6" billion.
In addition, EY carried out due diligence to identify additional
provisioning needs faced by the CB PRIVATBANK PJSC. Based on the audit findings
and the bank"s negative capital position confirmed by the auditors, the NBU
approached the CMU with a proposal to inject additional UAH 38.5 billion into the bank. This amount is
deemed sufficient to enable the bank to meet the capital adequacy ratio
of 10 percent even under a conservative scenario applied by EY when performing a
due diligence of the bank’s balance sheet. Out of UAH 38.5 billion:
·
UAH 22.5 billion
is needed to plug a capital shortfall stemming from the former management"s
involvement in fraudulent operations before nationalization and set aside
provisions against the financial leasing portfolio given that the quality of
servicing of this portfolio by the persons related to the bank’s former owners
deteriorated following the bank"s takeover by the state.
·
Additional
UAH 16 billion will be required to cover impairment
losses on fixed assets.
"The NBU believes that the capital required to cover
impairment losses on fixed assets can be reduced by developing a clear
collateral management and debt recovery strategy for the bank," said NBU
Deputy Governor Kateryna Rozhkova.
Therefore, as a first step, the NBU has proposed and the Cabinet of
Ministers has supported a consideration that it is sufficient to increase CB
PRIVATBANK PJSC’s capital by UAH 22.5 billion. A final decision
on the amount of equity injection and its split into phases will
be taken by CMU based on the proposal made by the NBU and conclusions of
the Expert and Analytical Council.
Additional capital will be injected into CB
PRIVATBANK PJSC through the issuance of domestic government bonds (DGBs). It should
be noted that the monetization of this capital will
not be required at this stage. At present, the bank’s liquidity exceeds UAH 17 billion
and the equivalent of USD 800 million. Hence, the bank has no need for fresh cash. Accordingly, Privatbank"s recapitalization without the subsequent
monetization of DGBs will have no impact on the exchange rate and inflation.
As part of the recovery plan for CB PRIVATBANK PJSC, in late December 2016
and early January 2017, DGBs issued by the Ministry of Finance was monetized
twice by the NBU through the purchase of DGBs worth UAH 27.2 billion.
For reference: Due diligence procedure (in English
due diligence means “required carefulness”) is a procedure aimed at providing a
fair presentation of an investment object which
includes valuation of investment risks and an independent appraisal of an
investment object. Due diligence of CB PRIVATBANK PJSC was carried out in
accordance with Article 41-1 of the Law of Ukraine On Households Deposit
Guarantee System to assess the bank"s financial standing, estimate the bank"s
capital position and identify its capital needs under the conservative scenario".
