I would like to
inform you that yesterday the National Bank
of Ukraine declared Privatbank PJSC insolvent and approached
the Government with a proposal to transfer this
systemically important bank into the
ownership of the state.
We are delighted that the Cabinet
of Ministers of Ukraine has
backed our proposal and approved
a decision on transferring the bank into 100 percent
State ownership. This move will
enable our country to ensure
the security of savings deposits
held by individuals
and funds held by corporate
clients at this bank. This
step will also help avert
risks to financial stability in the country.
We feel confident that the decision
to transfer the bank into
the ownership of the state
is the only
possible way to protect deposits
placed with this bank and
rescue the financial system. By doing so,
we protect over 20 million Ukrainian citizens that use services
provided by this bank and
hold their funds there. We
include here 3.2 million pensioners, over 500,000 students, and 1.6 million socially vulnerable households.
To ensure the maintenance of financial stability and prevent further
social tensions, it is equally
important that 500,000 sole proprietors will not lose
their funds and will continue
operating smoothly, as well as
Over 3.6 million employees
will maintain access to their
payroll accounts, including 2.2 million public sector employees
and 1.4 million private sector employees.
Which problems faced by PrivatBank posed
risks to the domestic financial
Over two years ago, the NBU launched
the most comprehensive diagnostic studies in the
history of the banking sector
that comprised an asset quality
review (AQR) and assessed capital needs faced by
banks. So far, the NBU has
completed the diagnostic studies for the 60 largest
financial institutions, representing 98% of the banking system.
Inspections and stress tests carried out
by the NBU revealed that PrivatBank
had capital shortages. As of
1 April 2016, the bank had capital
shortages amounting to UAH 113 billion, which, apart from
crisis-related factors, were caused by
imprudent lending policies pursued by the bank.
As of 1 November
2015, related-party loans accounted for 97% of the bank’s
loan portfolio, totaling UAH 150 billion.
PrivatBank, as well as other financial
institutions where capital shortages were revealed based
on the results
of stress tests, were required
to address these capital shortages,
as the rules
are the same
for all financial
The bank’s management team designed a recapitalization program and a program to
unwind related-party lending. The bank’s
shareholders also provided guarantees as proof of
their commitment to implement the
recapitalization program agreed to with
However, neither the bank nor
its shareholders implemented the program. Over the past year,
the NBU has held over 30 meetings
with the shareholders and managers of this
financial institution. Given that PrivatBank
is a systemically important financial institution, the NBU took a more flexible
approach, extending deadlines for fulfilling
the recapitalization program on many
As a result, as of 1 December 2016, capital shortages faced by PrivatBank
increased to UAH 148 billion and its
liquidity deteriorated significantly. The bank has not
complied with reserve requirements for a year. The past-due debt owed to the
NBU for stabilization loans amounts to
UAH 14 billion out of a total outstanding
debt of UAH 19 billion.
Being aware of all the problems
faced by PrivatBank and risks posed to
the health of the financial
sector and the economy as
a whole, we could not wait
Also, being aware of their inability
to fulfill the recapitalization program, the shareholders
filed a letter with the Cabinet of Ministers of Ukraine
requesting State equity participation in the bank.
The shareholders hereby undertook commitments to restructure loans issued by the
bank to corporate
clients by 1 July 2017, taking into account requirements
set by the
I would like to
stress that PrivatBank will be transferred into the ownership
of the State
in accordance with Article 41.1 of the Law
of Ukraine On Households’ Deposit Guarantee System, which establishes the rules governing the sale of
an insolvent bank to the
We have developed a clear Action Plan
to make the transfer of PrivatBank into the hands of
the State as painless as possible, and at
the same time reduce risks to the financial system’s stability.
Bank will continue to operate and will keep card transactions and payments
going as usual.
provision of services to corporate clients will be
temporarily suspended for one day (19 December) for technical reasons.
• Customers will face no other
will have unrestricted access to their current and savings deposits, but they will not be allowed to withdraw their long-term deposits
and POS terminals will keep operating and settlement transactions will continue
to be carried out through them.
We are aware that the situation surrounding this bank
raises concerns not only among its clients, but also among all Ukrainians. Will
price growth accelerate? Will the hryvnia depreciate
We want to provide
reassurances that the situation is kept under control.
Beginning Monday, the NBU plans to provide
liquidity support to the bank if the bank needs liquidity to ensure the
repayment of deposits. Since long-term deposits constitute the largest share of
the portfolio of deposits, the NBU does not expect PrivatBank
to face significant deposit outflows and this move will have a limited impact
on inflation and the FX market.
In any case, the NBU has enough tools in its
toolkit capable of mitigating excessive exchange rate volatility. Ukraine’s
international reserves amount to USD 15.5 billion.
This amount is sufficient not only to conduct currency interventions by selling
foreign currency, but also enables the Government and the NBU to settle their
foreign debt obligations.
I would like to
stress once again that all the funds held by
individual and corporate clients not related to the bank’s shareholders are
under the protection of the State.