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The State Approves Decision on Its Equity Participation in PrivatBank PJSC

Joint statement by

the Ministry of Finance of Ukraine and

the National Bank of Ukraine

 

At a meeting held on 18 December 2016, the Cabinet of Ministers of Ukraine approved a decision on state participation in the recapitalization of PrivatBank PJSC. In accordance with this decision, 100% of the bank's shares will be held by the state represented by the Ministry of Finance of Ukraine. This move will ensure the security of funds and savings deposits placed with this bank, will help avert systemic risks to the banking system, and will pave the way for preserving financial stability in the country.

This decision will enable the protection of over 20 million Ukrainian citizens that use services provided by this bank and hold their funds there. I primarily refer to 3.2 million pensioners and 1.6 million socially vulnerable households. They all will have unrestricted access to their accounts.

Currently, the bank operates as usual and meets its obligations to its customers and partners.

The state was forced to assume responsibility for the future fate of PrivatBank PJSC and its customers to prevent it from sinking into a deeper crisis. Unfortunately, the problems faced by the bank, which have been accumulated over many years, have recently deteriorated. These problems were mainly caused by imprudent lending policies pursued by the bank, which led to capital losses.

Over the past two years, the NBU has held talks with the bank’s shareholders, urging efforts to design and fulfill a recapitalization plan. However, the recapitalization plan was never implemented. The NBU established that total capital needs faced by PrivatBank currently amount to UAH 148 billion.

Being aware of all the problems faced by the bank and given its systemic importance to the health of the domestic financial sector and the economy as a whole, the NBU could not wait any longer and declared the bank insolvent. Therefore, the regulator approached the Government with a proposal to transfer this systemically important bank into the ownership of the state.

The Bank’s shareholders sent a letter to the Cabinet of Ministers of Ukraine requesting state equity participation in PrivatBank PJSC. The shareholders hereby undertook a commitment to restructure loans issued to corporate clients by 1 July 2017, taking into account requirements set by the NBU.

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.

“Compliance with laws and regulations, prudential ratios, and recapitalization plans are essential to the sustainable development of banks and the stability of the domestic financial system. Given the shareholders’ failure to implement a recapitalization program and keeping in mind the systemic importance of the bank, the NBU has initiated a proposal on state participation in the recapitalization of the Bank,” said NBU Governor Ms Gontareva.

“Given the systemic importance of the country’s largest bank, it was decided to transfer PrivatBank PJSC under control of the state. This move will make it possible to protect deposits and rescue the domestic financial system. The Government will allocate funds to stabilize the bank and the required amount of financing for the recapitalization of the bank has been earmarked in the budget. However, the budget will remain balanced. The budget parameters will remain within the targets set by the IMF program,” stressed Finance Minister Mr Oleksandr Danyliuk.

International financial institutions and financial market participants have been informed on the developments.

The situation is kept under control as PrivatBank PJSC is already run by the state. PrivatBank continues to perform operations as usual. The former management team has agreed to contribute to efforts by the crisis response managers appointed to lead the bank out of the crisis.

For reference:

The bank will be transferred from private shareholders into the ownership of the State as part of a special procedure set forth in Article 41-1 of the Law of Ukraine On Households’ Deposit Guarantee System.

In this connection, the Managing Board and the Supervisory Board of PrivatBank PJSC will undergo a reorganization. The bank will continue to perform operations as usual. All branches will continue operating with employees performing their duties.

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