Largest Bank in Ukraine Rescued by the State

On Monday, the government of Ukraine took control of the country’s largest bank in a move supported by international donors to Kiev as a way of protecting the financial system of the nation. The government made an appeal for calm while giving assurances to depositors directly from Ukraine’s President Petro Poroshenko.

In one of the largest shake-ups of the country’s banking sector since the nation plunged into political and economic turmoil over two years ago, Ukraine’s central bank said PrivatBank did not fulfill its program of recapitalization.

Risky practices of lending left the bank with a shortfall of capital of close to $5.66 billion on its balance sheet dated December 1, while 97% of the corporate loans it holds were to businesses linked with shareholders, said the statement.

The bank was part of the business empire powerful tycoon Ihor Kolomoisky who has been in a protracted battle with the Ukraine president in 2015.

Rescuing the bank, which the minister of finance said would require at least $4.5 billion from the central bank budget, could help to unlock additional aid in 2017 from the International Monetary Fund, but could threaten as well the country’s stability.

The opposition parties have called repeatedly for elections to unseat the leadership that is pro-West that took over power following the Maidan protest of 2014.

They harnessed depositors’ anger due to banks being shut down previously in a cleanup of the entire financial system, and demanded the resignation of the chief of the central bank.

President Poroshenko called for the clients of the bank, that number over 20 million to remain. He said he submitted an amendment to the parliament that would given more protection to bank depositors.

The opposition party leader Oleh Lyashko from the Radical Party blamed the problems of the bank on the country’s central bank. He said that Ukrainians must pay from their own pockets for these types of mistakes.

Another lawmaker from the opposition called the incident the greatest robbery of the state budget of Ukraine in this millennium.

Under banking reforms backed by the west, Ukraine shuts down lenders that are not able to meet targets of capitalization but many have said that PrivatBank is too big to fail.

This announcement comes only days prior to the parliament voting on the budget for next year, which must keep a shortfall of 3% of the output of the economy, as agreed to with international backers of the country.