Nadra Bank may become the fourth nationalized financial institution in Ukraine

Nadra Bank may become the fourth nationalized financial institution in Ukraine
State worried about the transparency of the processes occurring in the bank
Photo: Konstantin Melnitskiy

Based on the official statements of Nadra Bank, one of the largest financial institutions in Ukraine, and according to its results of Q3 2014, the bank is failing to meet several requirements of the prudential standards. For example, the bank’s current liquidity ratio is 20.87%, while the National Bank of Ukraine requires a minimum rate of 40%. In addition, the bank’s level of risk to a single counter-party is also high at 28.65%, while the maximum allowable rate is 25%.

Distressed assets

The main reason for the bank’s current problems with liquidity is the outflow of deposits combined with the deteriorating quality of its assets, says leading expert at the Expert rating agency Vitaliy Shapran.

Indeed, judging by the bank's financial statements for the first three quarters of 2014, the volume of deposit funds of its clients decreased by more than UAH 1 bn to UAH 12 bn. The decrease was entirely due to the return of deposits to customers. The actual outflow is even higher, since the deposit portfolio grew in tandem with the devaluation of the hryvnia.

“I believe it is possible to classify Nadra Bank as a troubled financial institution, but in the near future its shareholders will be able to cope with the situation. The bank may need UAH 2–3 bn for capital increase and alignment of certain standards,” Shapran commented on the bank’s current situation.

In early September, the media reported that the NBU named Nadra Bank among the troubled banks in the country. It is virtually impossible to confirm this fact seeing as the NBU does not have the right to publish a list of troubled financial institutions in order to avoid aggravating the situation in the domestic banking sector. But before announcing the insolvency of a commercial bank, the NBU takes measures to salvage it. Experts even assume that the NBU has allowed financial institutions that are unable to repay their debts for refinancing to not pay back their debts in cases, when financial institutions face problems similar to those of Nadra Bank.

As a reminder, the NBU rescheduled repayment of the principal amounts of debts for loans to support the liquidity of banks from September–November 2014 to December 10, 2014. In September Nadra Bank had to repay the NBU the highest sum of approximately UAH 900 mn.

The fact that at the end of June Nadra Bank appealed to holders of its Eurobonds with a request for restructuring also points to the problems of the financial institution. The institution was referring to securities valued at US $59.66 mn, which have been in circulation since 2007 and mature in June 2017.

Relying on the state

On Friday representatives of Nadra Bank announced that the institution planned to recapitalize. This issue will be discussed at the general meeting of its shareholders on November 19. Nevertheless, Capital did not manage to get any comments regarding the method and the amount of recapitalization.

As it was previously reported by Capital, according to statements made by the NBU’s management based on the results of stress tests of Ukraine’s 15 largest banks, 9 of them are in need a capital increase in the total amount of UAH 56 bn. In case the owners of the largest commercial banks cannot or will not help them – the financial institutions will be capitalized at the expense of the state, as it was earlier stated by NBU Governor Valeria Hontareva. Therefore, Nadra Bank could become another nationalized financial institution.

During the last financial crisis the salvation of troubled financial institutions cost the state budget more than UAH 26 bn, or US $3.2 bn at the exchange rate at the time. Capital increase of Rodovid Bank cost the state UAH 12.4 bn, of Ukrgazbank – UAH 9.8 bn and of Kyiv Bank – UAH 3.6 bn. Only Ukrgazbank is operating on a more or less regular basis these days, though it is again in need of another capital increase.

“I predict that this year the government will recapitalize financial institutions to the tune of UAH 20 bn. At first it will capitalize state-owned banks and then commercial banks. In this regard Nadra Bank is in a rush to open its doors for the public financing, which will be decided at the meeting of its shareholders,” says Chairman of the Ukrainian Interbank Currency Exchange Anatoliy Hulei.

Back to the past

The probability of recapitalization of Nadra Bank was discussed back in 2009. It experienced financial difficulties during the financial crisis 2008–2009 and therefore received two loans totaling UAH 7.1 bn to maintain its liquidity. In February 2009 the NBU introduced a provisional administration in Nadra Bank and extended the term of its operation until 2011, while the financial institution was in search of a new investor. Centragas Holding AG controlled by financial tycoon Dmytro Firtash became the bank’s new owner. The NBU granted the new owner a deferral for the repayment of refinancing debts until 2016, but according to the media the bank has not even started to repay its overdue debt obligations and in the first half of 2014 once again received funding from the NBU in connection with the outflow of deposits in the amount of approximately UAH 2.5 bn.

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