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CEO of Privat bank resigns as bank loses ($6.7billlion)

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Ukrainian Finance Minister Oleksandr Shlapak speak before signing a loan agreement with US Treasury Secretary Jacob Lew between the two countries during ceremonies April 14, 2014 at the Treasury Department in Washington, DC. The United States on Monday signed a $1 billion USD loan guarantee for Ukraine, part of an aid package aimed at supporting the country’s economic recovery. AFP PHOTO / Kaern BLEIER / AFP PHOTO / KAREN BLEIER

 

PrivatBank CEO Oleksandr Shlapak resigned on June 26, as the government moved to inject an extra Hr 38.5 billion ($1.5 billion) into the teetering state-owned lender.

Shlapak quit the bank the same day that it published a long-awaited audit by E&Y, which showed an Hr 176 billion ($6.7 billion) loss immediately after PrivatBank was nationalized, and which apparently contradicted an assertion by former National Bank of Ukraine Chief Valeriya Gontareva that 100 percent of the lender’s corporate loan portfolio were inside loans.

“Chairman of the board of PrivatBank Oleksandr Shlapak fulfilled in full his tasks to stabilize the situation at the bank and to complete an audit of PrivatBank’s financial condition,” read a statement from the bank’s supervisory board issued on June 26.

Shlapak joined the bank on Dec. 19, a day after the Cabinet of Ministers took the decision to nationalize the bank. He leaves after concluding an initial round of negotiations with financial management firm Rothschild on restructuring inside loans in the bank’s credit portfolio.

PrivatBank, which keeps around a third of the bank deposits in Ukraine, was previously owned by oligarchs and business partners Igor Kolomoisky and Gennadiy Bogolyubov before being nationalized in December over concerns about the bank’s stability.

A former finance minister and former PrivatBank employee, Shlapak was seen as a compromise figure between the bank’s former shareholders and the government, who are still at loggerheads over Hr 150 billion ($5.7 billion) in alleged non-performing insider loans that the government has said it wants Kolomoisky and Bogolyubov to pay back.

The two oligarchs deny there is a significant share of insider loans in the bank, and accuse the NBU of changing its verification criteria in a bid to seize the bank.

Shlapak resigned a week before a crucial deadline in that fight: the NBU gave Kolomoisky and Bogolyubov until July 1 to repay the debts. Once that date passes, whoever comes after Shlapak will take on the role of debt collector.

It is unclear who will replace Shlapak. Aleksandr Dubrovin, Shlapak’s chief deputy, resigned on June 14 and has reportedly returned to work at Ukrgazbank.

In a statement, Acting NBU Chief Yakiv Smolii said that the next PrivatBank head would focus on clearing the lender of toxic assets and beginning preparations to re-privatize the bank, a process expected to take years.

“Oleksandr Shlapak took charge of PrivatBank as the bank was going through a critical transition period following its bankruptcy,” Smolii said in a statement, adding that Shlapak had shown “high professionalism in stabilizing the bank.”

Since nationalization, the Ukrainian government has injected Hr 116.8 billion ($4.4 billion) into PrivatBank. The additional Hr 38.5 billion ($1.5 billion) will bring the total taxpayer bill for saving the bank to Hr 155.3 billion ($5.9 billion).

AUDIT PLAUDIT

At the same time as the bank announced Shlapak’s intention to resign, PrivatBank released its much-awaited audit of its 2015 and 2016 performance.

Conducted by E&Y at the behest of the Ukrainian government, officials initially said that the audit would be released by the end of March for public viewing.

Now that the report has finally been made public, it appears to contradict a key assertion made by former NBU Chief Gontareva, who resigned on May 10.

The auditors wrote that they were able to identify Hr 9.9 billion ($380 million) in inside loans on the bank’s balance sheet from the information they had available. Out of a 2015 loan portfolio size of Hr 150 billion ($5.7 billion), that’s significantly less than the 100 percent insider lending that Gontareva said in an April statement that the auditors had found.

But the NBU in a statement pushed back against the impression that the regulator’s former chief had misled the public.

“EY did not substantially study issues surrounding insider loans while preparing its 2016 audit of the bank,” the bank statement read. “Therefore, the auditors could neither confirm nor deny certain assessments.”

“Confirming the insider nature of the loans that Privat gave to its formerly connected parties is a question, above all, for the forensic audit, which will be completed in September 2017,” the statement concluded, before adding that the bank would disclose the information with the “permission of its attorneys.”

The EY audit records that the vast majority of the bank’s loan portfolio was non-performing, forcing the bank to budget Hr 155 billion ($5.9 billion) to cover loan impairment at the end of 2016.

EY’s auditors wrote in the report that they were unable to fully diagnose the problems in the bank because they were unable to find documentation from the time that the quality of the loan portfolio was degrading.

“It looks like the former shareholders are not going to repay much of the loans,” wrote Concorde Capital Analyst Alexander Paraschiy in a research note. “If the government is indeed going to fight with the former shareholders for the recovery of over UAH 150 billion ($5.7 billion) of related party loans (according to NBU statements), it should appoint a more hawkish CEO.”

He added: “If that doesn’t happen, it will indicate the government is not willing to fight.”

 

source:kyiv post

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