‘Zom­bie banks’ give Ukraine night­mares

Kuwait Times - - BUSINESS -

Ukraine’s cen­tral bank keeps try­ing to shut them down but they keep sur­viv­ing: ‘zom­bie banks’ are roil­ing the im­pov­er­ished coun­try’s fi­nan­cial sys­tem through the help of al­legedly crooked courts.

The for­mer Soviet repub­lic-la­belled the con­ti­nent’s most cor­rupt state by the Euro­pean Court of Au­di­tors on Wed­nes­day-needs fi­nan­cial aid from the In­ter­na­tional Mon­e­tary Fund to help sta­bi­lize its path out of a dire twoyear re­ces­sion.

But one of the IMF’s main de­mands for more lend­ing un­der its $17.5-bil­lion (16.2-bil­lion-euro) pro­gram is for Ukraine to shut­ter trou­bled banks whose as­sets are smaller than their bad loans and there­fore need govern­ment help to stay open. That is what the Na­tional Bank of Ukraine (NBU) has been try­ing to do-with vary­ing suc­cess.

‘Noth­ing but garbage’

A some­what ex­ac­er­bated di­rec­tor of the NBU’s le­gal depart­ment said that own­ers tar­geted by Ukraine’s main fi­nan­cial in­sti­tu­tion keep find­ing ways to stay afloat. Oleg Zamorsky said nine banks or­dered to cease op­er­a­tions by the NBU were res­ur­rected by the courts by early De­cem­ber.

An ear­lier cen­tral bank stress test found that 28 of 39 lenders checked lacked the re­quired cash on hand to sur­vive an­other po­ten­tial eco­nomic cri­sis. “The jus­tice sys­tem is be­ing used by bank own­ers that have been re­moved from the fi­nan­cial sys­tem for their own per­sonal gain,” the NBU’s Zamorsky said in a state­ment is­sued on Wed­nes­day.

“This, in turn, scut­tles our ef­forts to make the Ukrainian bank­ing sys­tem healthy and to clean up the sec­tor from zom­bie banks and banks that are noth­ing but garbage.”

He added that the dis­puted court rul­ings cre­ated a threat to Ukraine’s en­tire fi­nan­cial sec­tor and were a danger to peo­ple who put their life sav­ings in such banks. There was no im­me­di­ate re­sponse from the nine lenders men­tioned by Zamorsky or the courts in­volved.

But the IMF con­cluded its lat­est mis­sion to Kiev last month with­out agree­ing the terms or the time­frame for a new loan. “While good progress has been made, the au­thor­i­ties need some more time to im­ple­ment poli­cies to en­sure medium-term fis­cal sus­tain­abil­ity... safe­guard fi­nan­cial sta­bil­ity, and tackle cor­rup­tion,” the IMF team said on Novem­ber 11.

Ukraine’s econ­omy is on course to grow by about one per­cent this year af­ter hav­ing con­tracted by about 17 per­cent in 2014-15. Much of that nose­dive was at­trib­uted to a col­lapse in pro­duc­tion and a flight for safety by foreign in­vestors fright­ened by the 31-month pro-Rus­sian sep­a­ratist con­flict in the east that has claimed nearly 10,000 lives. Yet there could be an even larger threat loom­ing: the coun­try’s big­gest lender might just be headed un­der. Pri­vat­Bank ac­counts for one in three bank ac­counts in Ukraine and even has branches in the Baltic states. The bank is owned by Igor Kolo­moyskiy-a po­lit­i­cally pow­er­ful bil­lion­aire who be­came an early tar­get of Ukrainian Pres­i­dent Petro Poroshenko’s up­hill fight against cor­rup­tion.

The prob­lem for the ty­coon is that his bank has been ru­mored to be the tar­get for a state takeover be­cause of Ukraine’s need to fill its cof­fers. It has also been the sub­ject of lo­cal me­dia re­ports that it is­sued loans to select in­sid­ers that may never be re­paid.That talk alone saw the value of Pri­vat­Bank’s bonds fall by nearly 50 per­cent in late Novem­ber. The NBU wants Kolo­moyskiy to re­fi­nance his bank with bil­lions of dol­lars if he wants to keep it.

Kiev’s In­ter­na­tional In­sti­tute of Busi­ness chief Olek­sandr Savchenko told the Kyiv Post English-lan­guage weekly that Ukraine’s bank­ing sys­tem would be left in tat­ters were Pri­vat­Bank to close.

“Other banks would not be get­ting their loans back from Pri­vat­Bank, a se­ries of bank­rupt­cies would be­gin, and there would be panic,” Savchenko was quoted as say­ing.

“Re-launch­ing the sys­tem would take around one or two months; the loss to GDP would be around two to three per­cent.”

Big­gest bank’s bad loans

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