Firtash will have to pump UAH 5.5 bn into the capital of Nadra Bank

Firtash will have to pump UAH 5.5 bn into the capital of Nadra Bank
Nadra Bank Customers will see new flowering
Photo: Konstantin Melnitskiy

Nadra Bank (Kyiv) will increase its registered capital by 2.4 times (UAH 5.5 bn) – to nearly UAH 9.4 bn, a statement of the bank reads. The decision was made at the general meeting of its shareholders on October 19. The announced recapitalization amount will give the financial institution “enough strength to survive the period of general financial, economic and political instability in Ukraine, while continuing to develop new products and programs for clients, including those that concern lending”, said Chairman of the Board of Nadra Bank Dmytro Zinkov. He added that in addition the aforementioned capitalization guarantees the bank’s solvency in the short-term and long-term prospect, hand also confirms its capacity to settle accounts with investors and customers.

The bank will conduct private placement of shares among existing shareholders, as well as private investors, who intend to participate in capitalization of the financial institution, the bank’s statement reads.

Golden egg

The NBU reported that as of October 1 Nadra Bank was rated the 11th largest bank in Ukraine in terms of total assets (UAH 35.87 bn). The largest shareholder of the financial institution is the Centragas Holding AG (89.96%) affiliated with the Group DF owned by Dmytro Firtash. Experts are convinced that the main share of the mentioned amount will be invested directly by Firtash. “For him the stated capitalization amount is manageable. It is quite possible that Firtash will invest it in the bank within a few months,” says Leading Analyst at the Expert Rating Agency Vitaliy Shapran.

At the same time, Firtash’s industrial assets are also feeling the effect of rough times. Some enterprises are besieged by lenders, for example, companies belonging to the Ostchem Group. In addition to that, the industrial tycoon is currently under investigation in Vienna by the FBI, which suspects him of bribery. But, according to Shapran, it should be taken into account that Firtash has been engaged in export of products for many years and definitely has some foreign currency savings abroad. “UAH 5.5 bn at the rate of UAH 8/USD is one amount and at the rate of UAH 15/USD – it is nearly twice less,” says Shapran.

The bank’s need for recapitalization, even without taking into account the results of the stress tests conducted by the NBU, is obvious. Based on its official statement, in the 3rd quarter the financial institution did not fulfill a number of requirements of prudential standards. For example, the bank's current liquidity ratio stands at 20.87%, while the regulator demands that it be at least 40%. The maximum amount of exposure per counterparty is overestimated – 28.65%, while the maximum allowable rate is 25%. The main reason for the bank’s current problems with liquidity is the outflow of deposits on the backdrop of the deteriorating quality of assets.

Based on the bank’s financial statements over three quarters of 2014, its volume of deposits fell by more than UAH 1 bn to UAH 12 bn. The actual outflow is even higher, because the portfolio of deposits in foreign currency grew due to devaluation of the hryvnia. At the same time, the financial institution experienced a decline of its client loan portfolio. "Since the beginning of the year the loan debt, classified as category IV and V, increased by 1.5 times – from UAH 4.8 billion to UAH 7.3 bn, which entailed building up additional reserves,” explains Head of the Department of Financial Ratings at IBI-Rating Anna Apostolova.

At the beginning of September, the media reported that the NBU declared Nadra Bank one of the troubled institutions and introduced a supervisor. Perhaps, this fact pushed its owners to hasty recapitalization, because after 180 days from the date of introduction of the curator, the NBU has to decide whether to deem the financial institution insolvent. The internal troubles of the financial institution were also evident when in late June the management of Nadra Bank submitted a request to holders of its Eurobonds for restructuring. It was the case of US $59.66 mn in bonds, which have been in circulation since 2007 and mature in June 2017.

Plugging the hole

UAH 5.5 bn in capitalization money should be enough for the first time. For example, due to the announced increase in capitalization, the ratio of borrowed funds per single counterparty in relation to regulatory capital of Nadra Bank has almost halved. “But for now it is too early to speak of solving all the problems of the bank with this amount,” said Apostolova. For example, presuming that the outflow of deposits continues and borrowers will not repay loans on time, the financial institution may need additional funds.

This is not the first time that the bank is in need of salvation. During the crisis in 2008–2009 the bank experienced financial difficulties and was granted two loans in the amount of UAH 7.1 bn to maintain its liquidity. In February 2009, the NBU introduced provisional administration at Nadra Bank and extended its work by 2011, until the financial institution found a new investor – Firtash’ Centragas Holding AG. The regulator gave the new owner a deferral on repayment of refinancing until 2016. The bank still has not even started repaying its old debts and in the first half of 2014 it received additional funds from the NBU, according to the media.

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