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Ukraine : Kateryna Rozhkova Says State Decisions Regarding Privatbank are Well-Justified, Transparent and Publicly Available.

NBU Acting Governor Yakiv Smolii and Deputy Governor Kateryna Rozhkova participated in a working meeting of the Parliamentary Financial Policy and Banking Committee. Adhering to the policy of transparency and publicity, Ms Rozhkova provided details of the audit findings by E&Y accounting firm following an audit of PrivatBanks financial statements compiled in line with IFRS as of 31 December 2016 and the findings of capital needs assessment. The NBU Deputy Governor said that the capital needs assessment was carried out in n accordance with Article 41-1 of the Law of Ukraine On Households Deposit Guarantee System to assess PrivatBank's financial standing, estimate the bank's capital position and identify its capital needs under the conservative scenario.

The independent audit findings confirmed reconfirmed the NBUs previous estimates suggesting Privatbanks poor financial standing and justified the the state's takeover of the bank to protect over 20 million bank customers and preserve the financial stability in the country. Therefore, such decisions are not subject to revision, underlined Ms Rozhkova.

Ms Rozhkova presented a summary of the audit findings to the meeting participants. The key audit findings are as follows:

Loan loss provisions and provisions against advances to customers UAH 184.3 billion, which fully confirms a hole in the banks balance sheet when it was nationalized and very poor quality of its assets.

PrivatBanks negative capital position stood at minus UAH 882 million and its regulatory capital amounted to minus UAH 2.6 billion. These figures confirm the need for additional capital to be injected into the bank to plug the hole.

Analysis of the bank's loan portfolio shows that loans were issued to finance core businesses linked to the banks former shareholders, with none of the banks borrowers being large enterprises not related to Privat Group.

The considerable amount of impaired loans UAH 206.5 billion, of which only a small amount (UAH 14.9 billion) were loans to individuals and SMEs. These figures point to risky lending policies pursued by the banks former management team. For comparison: amounts due to households stood at UAH 151.2 billion when the bank was nationalized. Thus, the bank had no funds to repay deposits before nationalization. PrivatBank was a Ponzi scheme.

Out of UAH 178.4 billion worth corporate loans and UAH 15.3 billion worth financial lease loans only UAH 23.7 billion worth loans were secured by collateral. Due to the lack of collateral borrowers were not interested in repaying loans, making debt collection through the courts extremely difficult.

The auditor was unable to unearth sufficient evidence to support audit findings about the period when the impairment of loans and advances to customers occurred. For an impartial analysis of the event that occurred during the year, one need to rely on the audit findings for the previous financial year. Therefore, the auditors did not confirm the credibility of PrivaBanks Annual Report for 2015, which was audited by PwC. Actually, this means that loans could have been impaired both in 2016 and in the previous years.

Ms Rozhkova said that it was beyond the mandate of E&Y to analyze PrivatBanks insider loans when preparing an audit report on the banks financial statements for 2016. The objectives of the forensic audit, which is due to be completed by mid-September 2017, include investigating insider loans issued to PrivatBanks related parties.

All the actions of the NBU aimed at defending the state's interests when it comes to PrivatBanks nationalization, including during the litigation process, are consistent, public, transparent and understandable to the public. The NBU will remain committed to these principles in the future. Claims filed to challenge the banks nationalization cannot result in PrivatBank being returned to its former owners as Article 41 of the Law of Ukraine On Households Deposit Guarantee System reads the state as an investor cannot be stripped of the ownership rights on the banks shares it has acquired and these shares cannot be repossessed by the former owner, concluded Ms Rozhkova.

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Publication:Mena Report
Date:Jul 13, 2017
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