Five years ago, Kyiv Bank was nationalized. Now it's once again on the brink of bankruptcy.
ProAgro owner Nikolai Vernitsky sensed something was wrong when his bank stopped processing payments. It was the first day of autumn, the start of business activity, but "No money!" was the approximate response Vernitsky's company received from the head of the Shevchenkivskyi branch of Bank Kyiv.
Vernitsky has been a customer of this financial institution for the past 13 years and experienced a similar situation in 2009. Back then, the bank froze his accounts for six months. Why did he stay? "Small banks are always more loyal to their clients," he shrugs.
As of Wednesday, September 17, Kyiv Bank's correspondent accounts with the NBU held approximately 50,000 hryvnias. "That's the same amount as I have in Kyiv Bank's accounts," Vernitsky says sadly. "If the bank is liquidated, I'll lose this money."
Kyiv Bank currently ranks 72nd by assets. Five years ago, it was thirty spots higher. What went wrong?
Old luggage
The 2008 crisis hit the construction industry hard. Projects were frozen, and construction companies went bankrupt. The banks that financed these construction projects suffered from a wave of loan defaults.
Bank Kyiv, which primarily focused on lending to construction companies, immediately recognized this problem. By mid-summer 2009, the bank's non-performing debt ratio had reached 95%—the highest level in the banking system.
The bank stopped receiving loan repayments and was unable to pay depositors who held over 2,2 billion hryvnias in their accounts. Protests erupted. Enraged bank clients, mostly pensioners, blocked the road to Bohdan Khmelnytsky Street, across from the bank's head office, and stood guard outside the bank's doors day and night, begging the NBU for assistance.
After much deliberation and bureaucratic red tape, the Cabinet of Ministers decided to recapitalize the bank. This surprised many financiers, as Kyiv was already a small bank. It was eligible for recapitalization because it was systemic and accounted for 1% of retail deposits systemwide. These were the Cabinet's requirements for banks eligible for recapitalization.
In mid-2009, Kyiv Bank, along with Ukrgasbank and Rodovid Bank, was recapitalized. In total, the state allocated over 25 billion hryvnias to rescue these banks. Kyiv Bank received 3,6 billion of this amount. Depositors immediately began receiving their deposits, the panic subsided, but the loan portfolio did not improve.
The bank issued most of its loans to companies belonging to its previous owner, Mykola Marchenko, from whom the Ministry of Finance effectively seized the bank. The businessman simply refused to repay the debts. In late 2010, Marchenko was detained by the Security Service of Ukraine (SBU).
There are numerous criminal incidents associated with this bank. The first temporary administrator of Bank Kyiv died suddenly, law enforcement officers found weapons in Marchenko's office, and his men were detained while they were removing more than 20 land deeds from the bank. A criminal case was also opened against the bank's former chairman of the board, Yuriy Maslov, who took over the bank after the recapitalization.
After nationalization, the government was unable to come up with a development strategy for Bank Kyiv. Within the Ministry of Finance and the National Bank of Ukraine, the possibility of merging the bank with Rodovid Bank and then Ukrgasbank was constantly discussed. They settled on the idea of creating a land bank based on Bank Kyiv. But this idea also failed miserably.
In 2012, the state created Goszembank from scratch; the team that had worked on this project at Kyiv relocated there. Discussions about merging Kyiv with Ukrgasbank resumed.
Suspended years
This summer, Bank Kyiv celebrated the fifth anniversary of its state recapitalization. The Ministry of Finance owns 99,94% of the financial institution's shares. During this time, the bank fell from 44th place by assets to 72nd. Its assets decreased by almost 40%, while retail and corporate deposits fell by 90%. The bank's nonperforming debt decreased from 95% to 78%.
Almost the entire loan portfolio of Kyiv Bank consists of loans issued by the bank before the recapitalization, as well as loans issued by temporary administrators, the legality of which was later investigated by law enforcement agencies. Currently, the bank is not lending at all, working on loan repayments. Last year, it managed to repay approximately 180 million hryvnias, and this year, 95 million hryvnias. Kyiv Bank earned a profit of 2 million hryvnias in the first half of the year.
While the Ministry of Finance previously expressed hope that the state would recoup the funds invested in rescuing nationalized banks, officials have remained silent on the matter for over a year.
Selling the troubled Kyiv bank for $260 million (3,6 billion hryvnias at a rate of 14 UAH/USD) is simply unrealistic. Recently, Mykola Lagun bought Universalbank, the 30th-largest bank by assets, for 95 million euros.
The number of skeletons in Kyiv Bank's closet hasn't diminished over the years. The NBU is demanding additional reserves of 600 million hryvnias and refinancing debt of another 700 million hryvnias. It is this debt that has caused the bank's situation to worsen since early September. On August 29 of this year, the NBU debited approximately 50 million hryvnias from Kyiv Bank's correspondent account to pay off the refinancing debt.
The bank's board was taken by surprise by this write-off. They had planned to use the building housing their head office to pay off part of their debt to the NBU. It's a large building in the city center. Appraisers had valued it at 400 million hryvnias six months ago. At the current exchange rate, the valuation could be around 600 million hryvnias. Then the bankers expected the NBU to add them to the list of banks granted a deferment on refinancing until December. This also didn't happen.
The bank's correspondent account with the NBU has approximately 50 hryvnias remaining, and it is failing to meet most of the regulator's requirements. All payments have been suspended. The bank's payment records as of September 000, 18.09.2014, total approximately 25 million hryvnias.
Oleh Tyutyunnyk, Chairman of the Board of Directors of Kyiv Bank, resigned effective September 22. The bank's retail deposits amount to just over 300 million hryvnias, most of which falls under the Deposit Guarantee Fund. However, the Fund itself has no funds for payments.
Yesterday, bank depositors were already flocking to the headquarters. Among them are the same people who were there in 2009, but they're still behaving calmly. For how long? "There'll be a riot soon," predicts one of the Kyiv Bank employees.
Hubs
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