Ukraine is suffering from a major financial crisis since late 2008, characterized by the world’s greatest devaluations of the national currency.
For the last eight years Ukrainian businesses sustained significant losses, which directly impact the banking sector.
Liquidation proceedings were initiated for more than 70 commercial banks during the period of last two years only.
The reason for the establishment of temporary administration in those facilities and further liquidation of most of the banks is infringement of the regulations of the National Bank of Ukraine and the loss of liquidity.
Few banks are exception to this trend. These banks are closed for political reasons and have non-transparent ownership structure.
The main course of insolvency of banks is withdrawal of funds by the banks’ owners and provision of business credits associated with the shareholders of the banks.
As for individual loan default — it became clear that the loan portfolios were insignificant, when compared to the stolen funds by the shareholders.
In my opinion, the current situation is a result of total corruption in the NBU and systematic, unpunished law violations committed by bankers.
Most of the bankers got used to the fact that NBU is «blind» to violations.
However, using the task set by the International Monetary Fund before Valeria Gontareva, the NBU governor, to reduce the number of banks in Ukraine, banks are being liquidated one after another. This was coursed by the longstanding disregard for laws and inability to bring bank’s condition into compliance with the law.
The exceptions were the large banks such as Forum, VAB Bank, Delta Bank, Nadra Bank, the Bank Finance and Credit and a number of others, which the NBU hesitated to liquidate and delayed this process for several years despite the conclusive knowledge about the catastrophic conditions of the banks and their inability to fulfill their obligations.
Meanwhile owners of these banks used allowed time to withdraw funds from financial institutions.
All of them to this day feel certain of their impunity, which is caused by the so-called «Kolomoisky effect».
This concept appeared with a regard to the public statements of one of the richest people of Ukraine and the owner of the Privat group — Igor Kolomoisky on unpunished disregard of the law. And this reference was followed by many wealthy people in Ukraine.
The «Kolomoisky effect» led the largest commercial bank in Ukraine – PrivatBank to go weak at the knees.
Almost 60 percent of all individuals’ deposits placed in the banking system of Ukraine today are placed in this bank. Its services and numerous branches are very convenient. In addition, liquidation of a large number of banks and payment of their funds to their investors through branches of PrivatBank has significantly increased its customer database.
However, the principle “too big to fail” in this case might not work. The state no longer has money to maintain the liquidity of the bank. Since 2014 law enforcement agencies are investigating the elimination of almost $1 billion from the structure of PrivatBank.
It should also be noted that according to PrivatBank’s reports more than 95 percent of the loan portfolio is allocated in enterprises of Dnipropetrovsk Oblast where the greatest amount of the assets of Privat group is situated. This leads to conclusion that the bank is actually lending its own business at the expense of funds involved from its private clients.
This information is justified by the reports of PrivatBank for the last year, where the insider lending regulations are significantly violated. Thus for the last two quarters of 2016 PrivatBank ceased to indicate this information in their reports at all.
Over the past two years PrivatBank implemented a practise of no-return deposits to depositors for no good reason. A large number of PrivatBank’s clients accounts are being blocked by the Bank in order to avoid funds withdrawal under the guise of financial monitoring.
The problem is evident from the Bank’s rapid growth of enforcement proceedings on recovery of funds from it. Nevertheless, PrivatBank, as previously did Finance and Credit Bank and Zakhidinkombank trying to block the recovery of funds using illegal restraints issued by the court. The ban on collection of funds extends even to the NBU, which is not much in a hurry to challenge this court ruling.
The situation at hand and the regular visits of one of the main shareholders of PrivatBank — Kolomoisky to the Executive office of the President and the National Bank of Ukraine in my estimation is an evidence of serious problems at the Bank.
It should be noted that main assets of the Privat group – the oil business is now in a difficult position with due to a large debt to the State budget and the lack of addressing this issue out of the court.
Comparing all these facts, we can conclude that “Kolomoisky effect” and continuous disregard of the law in the end will lead to the collapse of the entire Private»group. This will result in a possible emergency nationalization of PrivatBank and freezing public funds for an indefinite period, or its irretrievable loss.