CBN pours $500M into nationalised bank

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December 20, 2016 12:26 PM

The two billionaires were reportedly heavily burdened by debt because of dubious loans the bank made to their cronies.

A PrivatBank branch in Kiev on December 19, 2016

Ukraines central bank on Tuesday poured more than half a billion dollars into the countrys largest bank after nationalising it in a bid to avert its collapse and a financial meltdown.

PrivatBank received 15 billion hryvnias ($558 million dollars / 546 million euros) in order to stay afloat while it undergoes major restructuring.

The central bank said the money would be used "to support (the bank's) liquidity, ensure the uninterrupted servicing of clients, and the functioning of automated teller machines."

The loan was issued at a 16 percent annual interest rate that must be repaid by the end of the year.

The lender was owned by Poroshenko's political foe Igor Kolomoyskiy and his close business partner Gennadiy Bogolyubov.

Kiev's decision falls in line with the International Monetary Fund's demand for Ukraine to clean up and stabilise its murky financial sector and seek sustainable growth.

Both the IMF and the European Union welcomed the government's action.

But the state takeover has created public unease about people's holdings and whether the country might enter another economic crisis similar to when Russia annexed Ukraine's Crimea peninsula in March 2014.

A subsequent 31-month war with pro-Russia insurgents in the separatist east claimed nearly 10,000 lives and saw the economy shrink by about 17 percent in 2014-15. Inflation soared to just under 50 percent last year.

Ukrainian Central Bank chief Valeria Gontareva told reporters that PrivatBank had miserably failed a series of stress tests and was in a $4.2-billion (4.0-billion-euro) hole in April 2015.

She said 97 percent of the bank's loans at the time had been issued by Kolomoyskiy to his business partners who might either have not paid them back or had done so on preferential conditions.

Gontareva said the bank's debts grew to $5.6 billion by December 1.

PrivatBank was considered to big too fail since its holds more than a third of Ukrainians' deposits.

Its closure could have sparked a domino effect that froze the financial system as it did when the United States suffered its great recession in 2008-09.

Some political analysts hailed the government's step as an overdue show of power over tycoons who have wielded outsized influence in corruption-riddled Ukraine for decades.

"This may have been the very first time that the Ukrainian government took an actual hard decision," Dragon Capital investment bank's economist Sergiy Fursa wrote on Facebook.

"Nationalisation is a bad decision," he said. "But it is better than all the other alternatives."

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