Dmytro Firtash. Photo: i.ua
Recently, the NBU "awarded" Nadra Bank, which belongs to Group DF owner Dmitry Firtash, the status of a problem bank and appointed a curator.
A high-ranking official at the institution itself spoke about this.
This information was confirmed by other independent market sources. "The regulator has already issued such a resolution," an EP source asserted.
Now there is only one step left to the interim administration.
The fact is that declaring a bank problematic is a banking secret. The NBU does not publicize such a decision. According to sources, Nadra is the only bank in the top 10 to have received such an "honorable" designation.
"The NBU has 180 days from the date a bank is classified as problematic to decide whether to recognize the bank's activities as compliant with the law or to classify the bank as insolvent," explains Igor Opadchiy, partner at the law firm U&G Partners.
It is significant that Nadra Bank and the NBU were unable to refute this information.
In its convoluted response to a written inquiry, the NBU's press service cited banking secrecy but made no denials. Meanwhile, Nadra Bank CEO Dmitry Zinkov and Group DF Managing Director Boris Krasnyansky did not respond to EP's written questions.
"I've looked at the list of banks the NBU plans to declare insolvent (this means introducing a temporary administration for the Deposit Guarantee Fund for Individuals – EP). It's striking that, in addition to CityCommerceBank and smaller banks, Nadra is also listed," one banker marveled.
As a reminder, Nadra had already teetered on the brink once. Only the talent of Firtash's top manager, Valentyna Zhukovska, and far from polite client relations methods succeeded in rescuing the bank. Specifically, their deposits were withheld for years, even following a court order. Ultimately, they received the money, but they realized the full extent of the corruption in the Ukrainian state.
But of course, Dmitry Firtash's interest played a key role in the bank's survival. At the time of the crisis, he had already invested a large sum of money in the bank and didn't want to lose it. So what's the oligarch's mood now?
The fact is that Firtash is widely considered to be close to Petro Poroshenko. If this is indeed the case, they will try to help the bank—either by supporting it with refinancing or by deliberately introducing a temporary administration (as happened last time).
In the latter case, the oligarch will be spared any claims from clients. And if bailing out the bank becomes unbearable, he can negotiate the withdrawal of the necessary assets and dump the institution's enormous machinery on the state.
"I think Firtash benefits from the introduction of a temporary administration at Nadra Bank, if only to relieve the burden on the balance sheet. His companies suffered greatly from the annexation of Crimea and the war in Donbas," says Dmitry Shestakov, a partner at the investment firm Goldman Milestone Group.
For example, due to the occupation of Crimea, Firtash will likely transfer the titanium and soda plants to Russian entities. Furthermore, the oligarch's Horlivka-based Stirol plant has ended up in terrorist-controlled territory. All this leads to a loss of financial turnover through Nadra, and therefore to problems with raising liabilities.
The oligarch's gas business also suffered. According to some reports, Gaztek, which manages Group DF's gas assets, suffered UAH 5 billion in losses. This company, along with regional gas companies, were likely also clients of Nadra Bank.
In recent months, the financial institution has faced significant problems repaying its largest loans. Furthermore, in the first half of 2014, the outflow of retail deposits from the bank amounted to approximately UAH 1,1 billion.
It's worth noting that Nadra Bank owes UAH 14 billion in NBU refinancing loans. Of this, approximately UAH 4 billion was raised under the new government. The bank received UAH 7 billion in government loans in 2008 and has extended these loans several times.
Photo: zik.com.ua
If a temporary administration is appointed to the bank, it's unlikely that all these debts will be returned to the state—even if all liquid assets are recovered. After all, the Deposit Guarantee Fund will first have to compensate approximately UAH 5,6 billion in retail deposits.
Shifting one's debts to the budget and not having to repay one's own loans from one's own bank is a good prospect for the institution's owner. "Of course, this will be beneficial to Firtash," says Rostislav Kravets, senior partner at the law firm Kravets & Partners.
On the other hand, the bank's complete bankruptcy is unlikely because too many of Firtash's companies are still served by Nadra. If he hadn't transferred their assets to other entities in advance, doing so under temporary administration is extremely problematic. We know nothing about the oligarch withdrawing assets from Nadra—if that were the case, the market would know about it.
What is the bank's position?
It's unknown how much stabilization loans the NBU issued to Nadra after the Maidan victory. Bankers say it was between 4 and 6 billion hryvnias. However, even this money appears to have been used not to return deposits, but to finance Firtash's business empire.
At the very least, it is known for certain that for several months now the bank has been reluctant to return deposits from individuals, and has been indecently slow in paying corporate debts.
Bankers put forward two theories that could explain this behavior.
The first is that someone is deliberately driving the bank into bankruptcy. The second is that Nadra has indeed suffered from the loss of key clients.
Nadra Bank's assets amounted to UAH 37 billion as of July 1, placing it ninth in the NBU's rankings. Even during the crisis, the bank actively expanded its branch network. It currently has over 500 branches in 300 cities across the country.
The bank purposefully developed its network to "vacuum" retail deposits, offering the highest deposit rates among major banks. A huge portion of this money was used to finance Firtash's projects.
It's possible that not only individual deposits but also NBU loans were used to finance insider trading. Since the beginning of 2014, the volume of interbank loans attracted by Nadra has increased by UAH 4 billion.
Bankers interviewed by EP admit that private financial institutions have not been lending to Nadra Bank for a long time. Most likely, all these loans were obtained by Firtash from the state. However, the bank has been defaulting on its depositor obligations for several months now.
Online banking forums are full of complaints from clients who are unable to withdraw their $100-$200 from branches.
The corporate call center claims that the "standard" limit for cash withdrawals from Nadr ATMs is 2,990 UAH per day. However, some ATMs located far from the ATO zone do not carry cash at all.
Source: minfin.com.ua.
There are hundreds of similar complaints on specialized websites.
According to an EP source, the NBU's banking supervision department is also inundated with similar complaints. The author called several central Nadra Bank branches in Kyiv asking for a refund of a 5 hryvnia deposit and received the following response: "We don't have any hryvnia right now—it's all been taken. Call tomorrow."
If Nadra does it again
In a worst-case scenario, temporary administration could soon take over the bank. Whether the Deposit Guarantee Fund will be able to handle payments to individuals is a big question. It's possible the bank will begin searching for an investor again, which will end in failure.
It is unclear how the banking system will survive such a high-profile bankruptcy.
"If a bank like this collapses, the system collapses," says the head of the board of a mid-sized bank.
It's extremely interesting what NBU officials are doing today to prevent Nadra's bankruptcy. Interestingly, NBU supervisors currently work at 32 financial institutions. Historically, their presence at a bank almost always results in the installation of temporary administration.
By law, the supervisor appointed by the National Bank of Russia assumes all oversight functions at a financial institution. Specifically, they must sign off on financial documents to prevent the withdrawal of funds through fictitious transactions.
"The bank's supervisor exercises enhanced oversight of its activities by analyzing reports and other information submitted to the NBU. Typically, they are located directly at the bank," says Tamara Gulenko, a lawyer at Sofokleous & Partners Consulting Ltd.
Bankers, off the record, insist that it's always possible to reach an agreement with the curator. "This is just a form of corruption at the NBU," asserts one financier.
That is, if Firtash is tasked with withdrawing his assets, he will succeed in many ways.
***
COMMENTARY. Response from the NBU's Media Relations Department
In response to your inquiry regarding the activities of JSC CB NADRA within its competence, we inform you of the following.
According to the Law "On the National Bank of Ukraine", the National Bank is the central bank of Ukraine, a special central body of state administration, the legal status, tasks, functions, powers and principles of organization of which are determined by the Constitution, this law and other laws of Ukraine.
In accordance with Article 7 of the Law on the National Bank, one of the functions of the National Bank is the implementation of banking regulation and supervision.
Thus, Article 55 of the Law on the National Bank establishes that the National Bank exercises the functions of banking regulation and supervision of the activities of banks within the limits and in the manner stipulated by the legislation of Ukraine.
Photo: ukrainaincognita.com
The specified provision of Article 55 of the Law on the National Bank fully corresponds with the provisions of Article 4 of the Law of Ukraine “On Banks and Banking Activities”, according to which the National Bank carries out regulation and banking supervision in accordance with the provisions of the Constitution of Ukraine, the Law on Banks, the Law on the National Bank, other legislative acts and regulatory legal acts of the National Bank.
It should be noted that, according to Article 5 of the Law on Banks, the National Bank is prohibited from influencing in any way the management or employees of banks in the course of performing their official duties or interfering in the activities of the bank, except in cases provided by law.
In accordance with Article 60 of the Law on Banks, information regarding the activities and financial status of a client, information about the bank accounts of clients, including correspondent accounts of banks in the National Bank of Ukraine, transactions carried out in favor of or on the instructions of the client, transactions carried out by him, the financial and economic position of clients, information on reporting for an individual bank, with the exception of that subject to publication, as well as information about banks or clients collected during banking supervision is a banking secret, which is disclosed in the manner determined by Article 62 of this Law.
The National Bank is constantly taking measures to ensure transparency of access to and use of refinancing by banks.
To strengthen the relevant control, by agreement of the parties, a representative of the National Bank is appointed to banks that have received loans from the National Bank.
The appointment of a regulator's representative is not a measure of influence on the bank; it allows the bank to directly consider all issues related to the transparent use of National Bank funds.
Repayment of the loan from the National Bank of Ukraine is carried out in accordance with current legislation.
We also note that the appointment of a curator is a measure of special control.
The curator exercises enhanced control over the bank’s activities by analyzing financial and statistical reports provided by the NBU and/or is located directly at the bank.
Since the beginning of the year, decisions have been made to introduce curators in 32 banks.
Alexey Komakha, Economic truth
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