Ukraine's biggest lender PrivatBank nationalised

Image source, Reuters

Ukraine's biggest commercial bank, PrivatBank, has been nationalised in a move aimed at protecting 20 million customers and "preserving financial stability in the country".

The country's central bank said the problems faced by PrivatBank were mainly caused by its "imprudent lending policy" which led to capital losses.

Ukraine's president Petro Poroshenko has reassured PrivatBank depositors that their money is safe.

The bank is operating normally.

The National Bank of Ukraine (NBU) declared PrivatBank insolvent on Sunday. The government subsequently backed the nationalisation.

PrivatBank is part-owned by the powerful billionaire oligarch Ihor Kolomoisky, who also has big stakes in the media and energy industries and has frequently come into conflict with President Poroshenko.

'Imprudent lending'

Central bank governor Valeria Gontareva said they were confident the decision to transfer PrivatBank to state ownership was "the only possible way to protect deposits placed with this bank and rescue the financial system".

The 20 million Ukrainians who use the bank include 3.2 million pensioners, more than 500,000 students and 1.6 million socially vulnerable households.

The nationalisation also enables small businesses to continue trading and means 3.2 million public and private sector employees will continue to be paid.

The NBU launched a study of the banking sector more than two years ago.

The stress test on PrivatBank revealed that the bank had capital shortages, which, the central bank said "apart form the crisis-related factors, were caused by imprudent lending policy pursued by the bank".

The NBU said at the beginning of this month that the bank had a capital shortfall of about $5.65bn (£4.5bn) and about 97% of its corporate loans had gone to companies linked to its shareholders.

"Being aware of all the problems faced by PrivatBank and risks posed to the health of the financial sector and the economy as a whole we could not wait any longer," said Ms Gontareva.

Commenting on the decision to nationalise PrivatBank, the head of the International Monetary Fund, Christine Lagarde, said it was an "important step in [Ukraine's] efforts to safeguard financial stability".

"Ensuring that all banks operating in Ukraine meet capital and regulatory requirements is essential to maintain public confidence in the banking system and reinforce the banks' ability to support productive activities necessary for the prosperity of the Ukrainian people," she added.