This year, the National Bank of Ukraine has declared 15 financial institutions insolvent

Photo: Eugeny Musienko

On Friday, August 15, the Deposit Insurance Fund (DIF) introduced provisional administration in the Ukrainian Financial World (UFW) bank in Donetsk. As of April 1, the UFW held 94th place in terms of assets at UAH 1.4 bn.

Taking over deposits

It was reported on the bank’s website that roughly since July 12 certain men in camouflage armed with guns have been occupying the building of its central office. “Staff evacuation was announced on July 11 and at the moment most of the employees have moved out of the city,” reports the website of the financial institution. The Donetsk office of the UFW was taken over by terrorists, says senior partner of the law firm Kravets & Partners Rostyslav Kravets. “Perhaps, these are some depositors who could not withdraw their deposits from the bank,” he suggests. Capital did not manage to contact the management of the financial institution for comments.

The bank has been experiencing certain problems for some time now. Back in February, UFW limited the amount of cash withdrawals through payment cards to UAH 1,900.

A provisional administration was introduced in the UFW for three months until November 15. The authorized person representing the DIF at the bank is the leading expert on settlement of bank insolvency in the Department of Introduction of Provisional Administration and Elimination at the Department of Settlement of Bank Insolvency Serhiy Honcharov. Since the UFW has been seized by armed men the temporary administrator will not have access to all documents and information on the structure of assets and liabilities of the bank, says Kravets.

The financial institution was established in 2003 and is part of the Olimp Corporation owned by Donetsk businessman Pavlo Klymets. It is possible that the latter may be financing his businesses through the UFW. As of April 1 the loan debt of the bank’s customers was UAH 1.2 bn. Of that 91% are loans to legal entities and only 9% are the debts of individual borrowers. Deposits in the UFW were close to UAH 1.1 bn, of which 82% was money from individuals and only 18% - the financial means of legal entities.

Insolvency factory

Within the last two weeks the UFW has been the second bank in which the DIF has introduced provisional administration. Earlier this month, the Golden Gate Bank in Kharkiv has also been declared insolvent (it is one of the small banks, total assets as of July 1 – UAH 918 mn). The regulator placed responsibility for insolvency on its shareholders – Yakiv Kuznetsov (owns 19.15% of shares in the bank), Vadym Vyshnevskiy (17.12%) and Yevhen Chernyak (10.07%). Golden Gate is associated with MP of the Party of Regions Mykhailo Dobkin. His father, Mark Dobkin, was one of the members of the bank’s Supervisory Board. Later, the media reported about the disappearance of the bank’s President Leonid Ulanovskiy and its Chairman of the Board of Directors Dmytro Komarkov. Relatives of the missing filed statements with the police.

In general, since the beginning of the year the NBU has declared insolvent 15 banks including two newcomers. They are the Starokyivskiy bank, Yevrogazbank, AvtokrazBank, FinrostBank, ZakhidinkomBank, PromekonomBank, InterBank, Forum, Merkuriy, BrokbiznesBank, Real Bank, Daniel and PivdenkomBank. The latter of the aforementioned – Donetsk PivdenkomBank – was given a second chance by the court. Last week the Babushkinskiy District Court of Dnipropetrovsk decided to suspend the decision of the NBU declaring PivdenkomBank insolvent. This decision was made as security for the claim of one of its depositors, who seeks to return his deposit in the bank opened last April through the court.

Line of withdrawal

Experts believe that by the end of the year the provisional administration could be introduced in several dozens of financial institutions. “By the end of the year provisional administration could be introduced in another 20 banks. At present there are liquidity problems in such institutions as CityCommerceBank, Porto Franco, Fortuna, Pershiy, AktyvBank and Terra Bank,” said Chairman of the Board at the Ukrainian Interbank Currency Exchange Anatoliy Hulei in a conversation with Capital.

Nevertheless, the problematic financial institutions still operate on the market and attract new deposits at fairly high interest rates – 25% and higher, said Hulei. “At the same time, the exchange rate of the national currency is already between UAH 12.50-13.50 per US $1 and has increased by 64% since the beginning of the year. The capital adequacy in the banking system is raising serious concerns. The outflow of deposits from the banking system shows low confidence in the banking system and the NBU continues to liberally monitor the market,” complains the expert.

Also, the current problems of the banking system are caused by the fact that borrowers from Donetsk and Luhansk oblasts and the annexed Crimea do not repay their loans. Many financial institutions credited industrial enterprises in those regions says Head of the Association of Factoring Companies of Ukraine UkrFaktor Pavlo Ruzhytskiy.

Another reason for the insolvency of banks will be the war against conversion centers. “Many small banks played the role of a conversion center and were not engaged in traditional banking activities. Currently, the “primary type of business” for many of them is not available and these types of financial institutions have lost their traditionally exorbitant earnings and therefore cannot fulfill their debt obligations,” says Ruzhytskiy.