PrivatBank requires recapitalization to the tune of UAH 4 bn

The new authorities in Crimea took down PrivatBank signs all over the peninsula

Photo: Konstantin Melnitskiy

PrivatBank decided to recapitalize in 2014–2015 in the amount of UAH 4 bn, reported the press service of the financial institution. This amount is calculated based on the results of the stress tests, which were recently conducted in 15 of Ukraine’s largest banks, one of them being PrivatBank.

Get on the lists

As it was previously reported by the National Bank of Ukraine (NBU), the stress test showed that 9 major Ukrainian banks are in need of a capital increase totaling UAH 56 bn. But the media erroneously reported that PrivatBank was not one of them. At the same time, the need for its recapitalization is obvious seeing as based on the results of the first half of the year the adequacy of its capital amounted to a mere 10.91%, while the required minimum is 10%. Due to the rise in the price of the U.S. dollar and the euro, the hryvnia equivalent of banks’ assets is increasing. Moreover, capital is formed in hryvnia, which means the share of capital on the balance sheet is automatically reduced in conditions of devaluation. Also, the bank’s ratio of regulatory capital to total assets as of July 1 was only 9.02%, while the minimum requirement is 9%.

The annexation of Crimea was one of the major problems for PrivatBank, as it lost almost all of its property and assets on the peninsula. The total amount of Privat’s investments into the Crimean economy is more than US $1 bn, the bank’s press service reported in March. Privat invested more than US $300 mn in the development of a modern banking infrastructure in Crimea. In Crimea Privat had two branch divisions, 337 branch offices, 773 self-service terminals and 483 ATMs. The financial structure loaned more than US $700 mn to Crimean companies and individuals. The new leadership of Crimea urged borrowers not to repay the loans to Privat, because it did not return deposits to its customers. The ATO in the east of the country also affected the performance of the financial institution. There Privat was forced to suspend the operation of its branches and ATMs as well. The terrorists managed not only to burn some branch offices of Privat, but also seize several of its cash collection vehicles.

“Recapitalization to the tune of UAH 4 bn can be compared with the amount of losses the bank incurred in Crimea and the Donbas region,” says Banking Sector Analyst at the ICU Group Mykhailo Demkiv. At the same time, Director of the Standard Rating Agency Andriy Nikitin believes that the announced funds will not be enough for PrivatBank to improve its performance. Nikitin says the financial institution needs a minimum of UAH 6 bn.

Searching for funds

The bank was dealt a serious blow by the withdrawal of cash deposits. In the first half of the year alone, the bank's depositors withdrew UAH 11 bn from their hryvnia accounts. It is difficult to say how much they withdrew from foreign currency accounts due to the rising currency exchange rates. To compensate for the outflow in February – June PrivatBank received UAH 14.7 bn in refinancing from the NBU and as of July 1 the total amount of its refinancing debt was UAH 18.1 bn. Only the state-owned Oshchadny owed the regulator more money – UAH 22.7 bn. In early September, PrivatBank received a stabilization loan of UAH 1 bn from the NBU.

Thanks to the support of the NBU, the situation that Privat faced has stabilized. “According to Privat’s report, in the first half of the year its situation was not that gloomy as it had a fairly solid liquidity cushion. Privat needed recapitalization, as it held capital adequacy indicators at a very low margin. The bank’s profits are not sufficient for its recapitalization, which means its shareholders will have to dip into their own pockets,” says Nikitin. As a bonus for the banks that will increase their capital, the NBU promises to soften the terms of refinancing. For this purpose, financial institutions should increase their regulatory capital by at least 20% by the end of 2015 and adopt programs of financial recovery until 2018.