MPs proposed to the National Bank of Ukraine to waive these debts

Old debts of Nadra bank broke into bloom

Photo: Ivan Chernichkin

Since the start of the year, the National Bank of Ukraine allocated over UAH 100 bn in refinancing of commercial banks. Over the same period of the previous year the banks received seven times less funds. The high demand for funding of the financial institutions is explained by the shortage of funds due to the withdrawal of deposits from the banks: in the first half of the year the volume of deposits in the banking system fell by UAH 86.5 bn

Six of one and half a dozen of the other

In such conditions not all financial institutions will be able to repay their debts to the NBU. The bill 4215a drafted by MP Ivan Fursin (Sovereign European Ukraine) and registered in the Verkhovna Rada in the beginning of the month is an indication of this. The parliamentarian proposed that if a bank is unable to timely repay the funds allocated by the NBU for the purpose of refinancing the central bank should have the right to convert this debt into a subordinated debt or securities of the financial institution. Over the past six months the banking sector sustained over UAH 10.4 bn in losses, the profitability of its assets decreased by 1.93%, while profitability of the capital – by 13.54%, explains Fursin’s assistant-consultant Mykola Melnyk arguing that the bill is relevant.

Searching the depths

Fursin is known as a business partner of Dmytro Firtash and the Honorary President of Nadra Bank. This financial institution is ranked fourth in terms of the volumes of debts to the NBU – as of June 1 the bank’s debt reached UAH 7.6 bn. Back in 2008-2009 Nadra Bank experienced financial hardships and in view of this received two loans for maintaining liquidity in the total amount of UAH 7.1 bn.

In February 2009, the NBU introduced provisional administration of Nadra Bank and extended the term of its operation until 2011 until a new investor appeared. Firtash’s Centragas Holding AG was the investor. The previous leadership of the NBU granted the new owner a deferral of debt repayment until 2016. According to a source of Capital, in 2013 Nadra Bank financed the acquisition of the Inter TV Channel by Firtash. However, the NBU’s oversight system did not react to that.

According to the mass media, the bank still has not started repaying its old liabilities, while receiving financing from the NBU again in 2014 to the tune of approximately UAH 2.5 bn due to the withdrawal of deposits. Also, the fact that Nadra Bank proposed its Eurobonds holders to restructure them at the end of June also points to the problems the financial institution is experiencing. This was about securities in the amount of US $59.66 mn, which have been in circulation since 2007 and mature in June 2017. In addition to that, information appeared in the mass media at the beginning of July regarding a US $200 mn loan, which Firtash allegedly received from Delta Bank owner Mykola Lahun for maintaining the liquidity of the financial institution.

At the same time, the operation of Nadra Bank does not bring in steady profits. In Q1, 2014 the net interest revenue of the bank amounted to only UAH 0.02 bn. The profit in Q1 was mainly received thanks to the rise in the U.S. dollar exchange rate – revaluation of the currency brought UAH 1.2 bn to the financial institution. Last year, the bank reported a net interest loss at UAH 0.28 bn. Nadra Bank prefers to stay mum about its financial results and refinancing. Clearly, Capital did not receive responses to these questions.

At the same time, the press service of Nadra Bank reported that in May-June retail clients placed deposits with the bank totaling more than UAH 2 bn. However, even this amount of deposits did not cover withdrawal of funds from the bank. “We believe that none of the major Ukrainian banks are ready to report on covered outflow of deposits of individuals since the start of the year,” announced Nadra Bank’s press service.

Dead load

Experts believe that the government should not take on the burden in the form of shares of banks that cannot meet their obligations to the NBU. “The government already has four banks acquired after the crisis 2008, which receive serious allocations from the budget; billions have been frozen at the Kyiv and Rodovid banks,” says member of the Supervisory Board of the Ukrainian Credit Banking Union Yaroslav Kolesnyk. Lawyers support his position. “Obtaining of the shares of banks that are under threat of going belly up does not seem like an effective solution,” assures a lawyer at the FCLEX law firm Andriy Ivaniv. In addition to that, the bill envisages a possibility of conversion of the debt into bonds, which do not grant government access to manage the bank, says the expert.

In its turn, the NBU could improve the discipline of the borrower banks by introducing tougher requirements to the institutions that received refinancing, believes Kolesnyk, in particular through stricter control of their transactions.