On 24 May, the National Bank of Ukraine (NBU) filed appeals against two rulings that Kyiv District Administrative Court made on 18 April 2019. In lawsuit No. 826/7432/17, filed by Ihor Kolomoiskyi, the court ruled that the government’s bailout of the then insolvent CB PrivatBank PJSC was unlawful. In lawsuit No. 826/13813/17, filed by PrivatBank’s former shareholder Cyprus-based Triantal Investments Ltd., the court overruled an NBU commission’s decision that identified the list of PrivatBank’s related parties.
Thus, the two rulings have no legal impact at this time, as they cannot come into force before the NBU’s appeals have been heard. The NBU cannot agree with some of the arguments on which the court grounded the rulings the NBU has appealed.
Regarding the ruling against PrivatBank’s nationalization:
1. Kyiv District Administrative Court completely ignored the fact that the NBU determined that PrivatBank required a capital increase, and the fact that PrivatBank and its shareholders Kolomoiskyi and Boholiubov failed to implement the financial rehabilitation program to increase the bank’s capital, which was the reason the NBU classified the bank as insolvent. At the same time, the court falsely concluded that NBU units’ internal memos were the only documents that informed the NBU’s decision.
2. The court wrongfully applied the rules of substantive law to the definitions of credit risks and provisioning against those risks, and falsely inferred that banks calculate credit risks only for loans that are past due and that in all other cases, banks do not have to make loan loss provisions at all. In addition, the court failed to define exposures, equating them to outstanding transactions.
Regarding the ruling against the NBU’s identification of PrivatBank’s related parties:
- The NBU’s decision did not infringe on the rights of Triantal Investments, as PrivatBank itself, by decision of its Board, had recognized Triantal Investments as a party related to PrivatBank. PrivatBank’s Board made this decision under former owners and thus did not violate anybody’s rights, which means Triantal Investments had no grounds to file the lawsuit. Therefore, the court should have dismissed the lawsuit.
- The court exceeded subject-matter jurisdiction by saying that the NBU violated the rights of PrivatBank’s former owner and that this violation constituted grounds for legal action. But if that had been the case, the lawsuit should have been heard by a commercial court, rather than the administrative court.
- The court came to a false conclusion that the NBU’s decision to identify PrivatBank’s related parties served as grounds to declare PrivatBank insolvent and to enable the subsequent sale of PrivatBank’s shares to the state. This conclusion is wrongful and absurd, as the decision to declare PrivatBank insolvent was based on the fact that PrivatBank had no capital, as indicated in the NBU’s decision.
- The court falsely inferred that the NBU’s commission for identification of related parties had no right to identify PrivatBank’s related parties, as the Law of Ukraine On the National Bank of Ukraine says nothing about that commission. However, under Article 52 of the Law of Ukraine On Banks and Banking, it is precisely the NBU that has the right to identify the related parties of a bank. Thus, in line with that article and Articles 7, 14, and 15 of the Law of Ukraine On the National Bank of Ukraine, the NBU Board created the aforesaid commission so that it would identify banks’ related parties by following a procedure established by the NBU Board. The NBU is the only government authority that has the right to identify banks’ related parties.
The decision to nationalize PrivatBank PJSC, as well as other related decisions, was prepared, coordinated, and approved by central government authorities in strict compliance with Article 41.1 of the Law of Ukraine On the Household Deposit Guarantee System (for key facts and dates, see the link below.)
This decision protected over 20 million Ukrainian citizens who keep their money in this bank and use its services, including 3.2 million pensioners and 1.6 million people from other vulnerable social groups. All of these individuals have retained full access to their bank accounts (and funds).
This decision helped avoid systemic risks to the banking sector and secured Ukraine’s financial stability.
The timeline of events around PrivatBank is available here: http://pb.bank.gov.ua.