Банки

The Austria-based Slav AG Company and Russia's Vnesheconombank were expected to transfer UAH 1.1 bln to PromInvestBank by the end of December 30, according to Interfax-Ukraine. In a statement made by Denys Kireyev, a Board Member of the Slav AG Company, Russia's Vnesheconombank would essentially become a majority stockholder of the bank. In all, Vnesheconombank and Slav AG are planning to invest over USD 2 bln in the bank.

PromInvestBank received the first tranche of a payment of around USD 190 mln from the Russian investor on December 28. The stockholders of PromInvestBank, Slav AG and Vnesheconombank earlier agreed on their joint participation in the bank's financial recovery.

On October 7, the NBU took PromInvestBank under temporary administration. The initial reason for the bank’s deteriorating financial situation was rooted in the population’s rush to make early withdrawals of bank deposits, which triggered difficulties in making such payments.

Our view: Probably the three-month saga with PromInvestBanks’ issues has drawn to a close. The Kliuevs, who bought a controlling stock in PromInvestBank after the bank was taken under temporary administration, finally found a serious and powerful investor. We believe that the financial resources that will be provided by Vnesheconombank as part of the bank’s financial recovery plan will recover PromInvestBank’s liquidity and will allow Prominvestbank to return to its day-to-day operations, and, in particular, repaying deposits.

We anticipate that the National Bank of Ukraine (NBU) will support Vnesheconombank’s plan concerning the acquisition of PromInvestBank. As well, we believe that the successful completion of this deal will have a POSITIVE impact on the Ukrainian banking system in general, taking into account the large part that PromInvestBank plays therein.

According to Interfax, at a meeting on Saturday, the Ukrainian Cabinet of Ministers took a decision barring banks from confiscating the apartments of citizens that were bought under loan agreements with banks if, at least, the amount covering the interest on those loans is repaid.

The decision also bars commercial banks from increasing interest rates on those loans that have already been issued.

Our view: The Ukrainian parliament recently approved a similar bill in the first reading. In contrast to that bill, which entirely disallows the confiscation of apartment for a half-year period, the Cabinet of Ministers’ decision says that at least the interest should be repaid, which should be an acceptable compromise between banks and debtors. This scheme was widely discussed in banking interests, and was approved by some of the largest Ukrainian bank authorities.

We anticipate that this decision, in conjunction with Parliament’s intention to approve the corresponding bill, will make an impact on banks to provide additional possibilities to their debtors concerning the restructuring of their loans. As well, we believe that Parliament will amend its bill to make it accord with the government’s decision.

The National Bank of Ukraine (NBU) has increased the reserve requirements for foreign currency deposits as of January,5, with this change being outlined in resolution #442. The norm of the reserve has increased from 3% to 4% for deposits with a fixed period and from 4% to 7% for callable deposits. The norm of the reserve for UAH deposits was not changed.

As previously reported by Sokrat, in early December, the NBU lowered the requirement for reserve money collected in foreign currency from 4% and 5% to 3% and 4%, respectively, as well as lowering the UAH requirements to 0%.

Our view: We believe that this is a logical action after practically prohibiting foreign currency consumer and mortgage loans (see our daily news from December 23 on this theme). Since banks won’t be able to provide the same amount of foreign currency lending as they did earlier, their liabilities should be also rebalanced towards a decrease of the foreign currency part. As well, we see a tendency that clients are converting their UAH deposits into foreign currency deposits (mainly USD), if they have such an opportunity, because of the low confidence in hryvnia.

Naturally, the increase in the reserve requirements, as well as banks’ objectives to counterbalance their FX assets and liabilities, is going to decrease the interest rates on FX deposits, and consequently decrease their attractiveness for individuals and business. In spite of this, we believe that the UAH’s stability or instability is going to be the main factor bearing on the demand for foreign currency deposits in the near future.

We believe that the NBU has realized the risks of the high ‘dollarization’ of the Ukrainian banking system and tends to promote policy aimed at decreasing this ‘dollarization’ level. As well, we emphasize that the decision to provide such policy is late-coming and, today, the Ukrainian banking system is studying its own mistakes as it encounters an increase in the level of non-performing loans, since banks’ credit portfolios generally contain 55% in FX loans as of November 1.

The NBU is restricting currency loans for borrowers who don’t have an income set in foreign currency, which mainly applies to consumer and mortgage loans, according to the National Bank order No. 406 issued on December 1 and registered by the Justice Ministry on December 17, which comes into effect on December 28.

The document supposes a higher reserve ratio for currency credits for debtors who don’t have foreign currency revenues. Particularly for the standard category of loans, which means that there is no delinquency, the provision rate is set at 50%. For all other categories of loans, with a delinquency of more than 1 day, the provision rate is set at 100%. This document takes effect with respect to loans that are to be issued after December 28.

The previous reservation on consumer and mortgage loans in foreign currency was 2% (“standard”), 10% (less than 30 days of delinquency), 40% (31-60 days), 80% (61-90 days), and 100% (over 91 days) respectively. For loans to debtors with foreign exchange revenues, the provision rates are not changed and remain 2%, 7%, 25%, 60% and 100% respectively.

Our view: In fact, the NBU is prohibiting foreign currency consumer and mortgage loans, since interest rates should essentially be increased in order to retain the profitability of such loans. This increase will make this type of loans unattractive for clients in comparison to UAH loans and only exporters will be still able to obtain FX funds with lower interest rates for their needs.

We believe that this restriction won’t have any significant impact today, since banks are not providing consumer and mortgage loans in hard currency these days. Anyway, we believe that this restriction will gradually reduce the level of FX loans and, in future, help to avoid repeating the current problems with an illogically big amount of foreign currency loans and the consequent inability of debtors to pay them, since their UAH revenues will have become insufficient to pay back their loans.

The European Bank for Reconstruction and Development (EBRD) has granted USD 75 mln to Raiffeisen Bank Aval [BAVL UZ, U/R] on the conditions of subordinated debt. A fund provision contract was signed on December 22. No information about the interest rate was disclosed.

As of October 1, the net assets of the bank were UAH 52,559.2 mln, its credit portfolio amounted to UAH 42,660.4 mln, and equity capital equaled UAH 5,724.7 mln. Austria`s Raiffeisen International Bank Holding AG owns a 95.68% stake in Raiffeisen Bank Aval, which is registered as an open joint-stock company.

Our view: As we reported earlier, top Ukrainian banks might soon have a necessity to increase their capital due to the testing of banks’ credit portfolio under IMF procedures and a consequent increase in the provisions’ level.

As well, we anticipate a dramatic increase in the level of non-performing loans at the beginning of 2009. The main reasons for this will be the UAH’s devaluation, considering the high level of USD loans in banks’ credit portfolios, and a decrease in wage rates. In such a case, we believe that receiving a long-term subordinated loan from the EBRD that increases the capital of the bank is definitely POSITIVE news for BAVL.

Rodovid Bank [RODB, U/R] plans to increase its statutory capital by 57%, or UAH 250 mln, to UAH 685 mln through an additional issue of shares, according to a report issued by the bank. According to this report, the increase in the bank's statutory capital will be put on the agenda of a general meeting of its shareholders, which is scheduled for January 30, 2009.The bank plans to issue additional shares with a face value of UAH 1,000.

According to the National Bank of Ukraine, as of October 1, 2008, Rodovid Bank ranked 19th among the 181 banks operating in Ukraine in terms of total assets (UAH 13.368 bln).

Our view: We believe that planning an increase in statutory capital is a far-sighted decision since Rodovid Bank, and Ukrainian banks in general, are going to experience an increase in the level of non-performing loans and will probably need additional funds to manage it.

As well, in compliance with the NBU’s decision, Rodovid, as well as other top Ukrainian banks, will be examined under the IMF procedure regarding its capital adequacy ratio. A tough stress-test method of examination will probably reveal a number of problems in the credit portfolio of the bank, which might subsequently increase provisions and requirements for a capital increase.

Commerzbank AG is planning to buy an additional 15% share in Forum Bank[FORM UZ, U/R] within the next three years, according to Wilhelm Nuese, the Deputy Chairman of the Supervisory Council of Forum Bank. “There is an option to buy an additional 15% in the Ukrainian bank within three years. This way we are planning to concentrate a 75% plus one share in the Ukrainian bank. We have many plans to develop our business here,” he stated.

According to Nuese, over the last few months, Commerzbank has provided Forum Bank with refinancing worth over USD 700 mln with the purpose of developing the Ukrainian bank.

On March 5, the German banking group Commerzbank AG acquired a stake of 60% plus one shares in Forum Bank. In doing so, it also secured the option to further raise its stake by 25% over the 36 months following that deal.

On October 1, 2008, net assets of Forum Bank totaled UAH 16.5 bln, which represents a 15% growth Yt9M2008, and a credit portfolio worth UAH 12.3 bln, which demonstrates 43% growth Yt9M2008.

Our view: This news is definitely POSITIVE for Forum Bank. The announcement made shows the intention of the parent bank to continue aiding in the development of its affiliate in Ukraine. As well, disclosing the amount of refinancing that Forum Bank received from Commerzbank confirms the seriousness of this intention and is convincing in terms of the stability of this bank. We believe that in the current situation, Forum Bank, as well as a number of other Ukrainian banks with foreign capital, is enjoying being the affiliate of large foreign bank since it has the ability to obtain relatively cheap FX funds from parent structures with the purpose of maintaining liquidity and continuing their respective further development.

The Provisional Administrator of Prominvestbank Volodymyr Krotiuk intends to suggest that the Cabinet of Ministers, the EBRD and the IFC become shareholders in Prominvestbank and take part in its financial recovery. "The National Bank’s Board of Directors has rendered relevant instruction to prepare an address to the Cabinet of Ministers, the European Bank for Reconstruction and Development, and the International Finance Corporation concerning participation in the capitalization of Prominvestbank, involving the state and international financial institutions," Krotiuk stated. He noted that on December 17, the Deloitte & Touche audit company will complete its examination of the bank and will suggest that the government, the EBRD and the IFC become stockholders of this financial institution by 2009.

As well, Krotiuk said that the new owners of Prominvestbank are about to reach an agreement with Vneshekonombank (Russia) in plans of increasing Prominvestbank’s statutory capital by UAH 900 mln to UAH 1.1 bln and obtaining deposits from Vneshkombank not less than the amount held by Prominvestbank before it faced its deposits’ outflow.

The Secretariat of Ukraine President Viktor Yuschenko has spoken out against this plan. Roman Zhukovsky, the Head of the Main Social and Economic Development Service at the President’s Secretariat, has commented that there is only one way out of the situation with PromInvestBank – a quick nationalization, involving the mechanism stipulated in the President's anti-crisis law.

Yesterday, it was disclosed that the National Bank of Ukraine boosted the sum of Prominvestbank’s refinancing by UAH 1 bln to UAH 7 bln.

Our view: The current situation with Prominvestbank seems to have not only an economic, but also a political aspect. The acquisition of Prominvestbank by a Russian state-owned bank may be unacceptable for some influential Ukrainian politicians. Taking into consideration the low confidence in the new owners regarding the fulfillment of their commitments, since the Kliuevs still haven’t accomplished them according to the agreed terms and the fact that no official information from Vneshekonombank has yet been released, we believe that the decision about acquiring Prominvestbank by Vneshekonombank doesn’t have a strong chance of being reached.

As we mentioned in previous Sokrat daily reports, we believe that the state is the main candidate for acquiring Prominvestbank. We believe that foreign commercial banks won’t show any interest in acquiring Prominvestbank, since confidence about the prospects of Ukrainian banks are extremely low these days. As well, we don’t see any possible domestic buyer of Prominvestbank capable of obtaining enough funds to complete a recovery plan that should be announced by the Provisional Administration, taking into account that it will probably cost at least UAH 4-5 bln.

Volodymyr Krotiuk, the Provisional Administrator of Prominvestbank, intends to approve the financial recovery program of the bank with state involvement. "Today the international auditing company Deloitte & Touche is performing a diagnostic study of Prominvestbank and its real value of the shares will be estimated based on these results. After the shares are evaluated, the provisional administrator will approve the financial recovery program with involvement by the state and it will be delivered to the National Bank for coordination," reads the official statement.

Prominvestbank's Provisional Administrator has already postponed the date for floatation of the bank additional issue shares several times, though the shares still have not been issued.

Yesterday’s press conference with Volodymyr Krotiuk was frustrated. Andrii Shvets, a member of the directorate of Prominvest’s provisional administrator, noted that the office of Volodymyr Krotiuk was blocked by Members of Parliament, but he did not specify from what factions the deputies are who are blocking the office. The next press conference is going to take place today at the National Bank of Ukraine.

Our view: According to non-official information, Volodymyr Krotiuk’s office was blocked by Members of Parliament who are affiliated with Andrii and Serhii Kliuev, the current owners of a 68% stake in the bank, who are still trying to obtain the necessary funds for the additional share issue and retain control over the Prominvestbank.

In spite of this, we see that the National Bank of Ukraine (NBU) and the current provisional administration no longer have confidence in the Kliuevs regarding the fulfillment of obligations and want Prominvestbank to renew its work as soon as possible. We consider the involvement of the state, which should now provide money for the share issue, could improve the situation for the bank. As well, we believe that in today’s situation, the state-owned Ukreximbank is the most probable candidate for acquiring Prominvestbank.

Sokrat will continue to keep readers informed as to developments regarding this bank as they unfold.

Volodymyr Krotiuk, the Temporary Administrator of Prominvestbank, confirmed that the bank’s owners failed to conduct the additional issue of shares scheduled as a part of the required financial readjustment of this bank.

Earlier, on October 11, Volodymyr Krotyuk announced the increase in the bank’s statutory fund from UAH 200 mln to UAH 1.1 bln. He said that the new investor in ProminvestBank would have to pay UAH 900 mln for the additional issue of shares within 10 days of November 11. The new owner would also have to invest UAH 3.6 bln in Prominvest in the form of subordinated debt or long-term deposits by December 5. The Central Bank has had to extend above-mentioned deadlines at least twice.

Volodymyr Krotiuk said that NBU’s decision will be announced today. As well, National Bank Governor Volodymyr Stelmakh does not rule out the participation of the Cabinet of Ministers in stabilizing the functioning of Prominvestbank. "The Cabinet of Ministers does not decline being involved in the game," he stated.

On October 7, the NBU took PromInvestBank under temporary administration. The initial reason for the bank’s deteriorating financial situation was rooted in the population’s rush to make early withdrawals from bank deposits, which triggered difficulties in making payments.

Our view: We see this news as NEGATIVE for Prominvestbank, as well as for the Ukrainian banking system in general. The successful acquisition of Prominvestbank and the return to normal day-to-day operations might have been a positive signal for the Ukrainian population and would have positively impacted on the population’s confidence in banks, which is extremely low these days. As well, according to Ukraine’s agreement with the IMF, the NBU should have resolved this problem in a short time period and now we see that two months have been spent inefficiently.

Since the current owners of Prominvestbank failed to meet those engagements that were previously reached with the NBU, we see the most probable candidate for acquiring Prominvestbank as the Ukrainian state, and, in particular, through the 100% state-owned Ukreximbank. As well, we do not exclude the probability of Prominvestbank’s acquisition by some other investor. We expect that Volodymyr Krotiuk will disclose the NBU’s plans regarding Prominvestbank at today’s scheduled briefing and we will keep readers posted as to current developments concerning Prominvestbank.