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ARCADA Bank Declared Insolvent

ARCADA Bank Declared Insolvent

The NBU Board has declared Arcada Bank insolvent due to its capital ratios decreasing by 50 or more percent below the required minimum levels.

The capital problems were caused by the bank’s loss of its main asset – the head office building and a land plot at 3 Olhynska Street in Kyiv. In 2019, Arcada Bank used this real estate as collateral for a loan issued to a developer company that is the bank’s related party. When the loan agreement was entered into, the assessed value of the building was over UAH 620 million (almost 27% of all of the bank’s assets).

The developer’s failure to make debt payments as they fell due meant that the creditor was able to register itself as the owner of the building. In this connection, Arcada Bank wrote-off the said real estate from its balance sheet. As a result, the bank’s capital fell below the required minimum, and it turned negative.

After studying materials on the re-registration of the ownership rights to the object (the collateral agreement, loan agreement and annexes to it), the NBU submitted to the National Police of Ukraine a statement on misconduct by bank officials.

The NBU had to declare the bank insolvent, due to the bank’s capital ratios decreasing by 50 or more percent below the required minimum levels.

Regarding depositors’ money

Over 90% of Arcada Bank depositors (over 5,000 people) will recover their deposits in full, as their deposits do not exceed UAH 200,000 – the amount guaranteed by the Deposit Guarantee Fund.

Customers with larger deposits will only be able to recover the guaranteed amount. The Deposit Guarantee Fund will pay out a total of about UAH 285 million in compensation to eligible depositors. 

Regarding unresolved construction issues

The removal of Arcada Bank from the market is not related to the delays in developers’ commissioning the Evrika and Patriotyka residential complexes.

Supervision of developers’ activities does not fall within the NBU’s mandate. Therefore, the NBU has repeatedly contacted the relevant competent authorities about problems with, and delays to, the construction work.

In recent years, the NBU has sent appeals to the Cabinet of Ministers of Ukraine, the Finance Ministry of Ukraine, the Internal Affairs Ministry of Ukraine, Kyiv’s mayor, the parliament Committee on State Construction, Regional Policies and Local Self-Governance, and the parliament Committee on Financial Policy and Banking.

In December 2019, the NBU, based on the results of an inspection of Arcada bank's confidential management operations, sent a notification to the Security Service of Ukraine about facts that could be an indication of organized criminal activity.

The NBU reiterates its concern over the state of construction work and stresses the need to put in place legislation to resolve the issue of existing long-delayed construction projects that are financed through construction financing funds.

The declaration of Arcada Bank as insolvent was approved by NBU Board Decision No. 541, dated 25 August 2020.

For reference

As of 1 June 2020, Kostiantyn Palyvoda, with an indirect share of 74.80%, was the largest shareholder in Arcada bank.

 

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