The national Bank (NBU) has today officially announced the failure of the former owners of “PrivatBank” is taken before July 1, obligations for debt restructuring companies. What are the next steps the regulator in respect of “PrivatBank” whether there are grounds for criminal prosecution of his former owners and why NBU was dissatisfied with the actions of auditors of the company PricewaterhouseCoopers, which conducted the audit of financial institutions, in an exclusive interview for 112.ua said Deputy Chairman of the NBU Ekaterina Rozhkova
– Ekaterina, you began a surprise that the restructuring of debts of the former owners of “PrivatBank” did not happen?
We worked for two years with the former top management and former owners precisely on the question of restructuring the loan portfolio to related parties. They signed the program, which has pledged to restructure and to provide the collateral. There were clear deadlines and these dates ended before October 1, 2016. But since this was not done, then we had an objective doubt that they will do it until mid-2017. We understand that this is likely not going to happen.
As far as we know, the current restructuring negotiations lasted until the last moment, what was it? Who suggested that?
– I can\’t comment on the negotiations themselves because the national Bank was not a party to the negotiations. The company, which they exercised, was hired by the Bank (the”PrivatBank” – ed.) according to the tender results, and the main question was – is debt restructuring and the registration of mortgage. There is no result. And what exactly was it, indeed, the NBU does not know, because we have a conflict of interest, we do not interfere in these negotiations – we are a regulator, we need a result. At the moment, has officially informed the Cabinet that there is no result, the time came. Therefore, the next step is to enforce or work with troubled portfolio, which is carried out by all banks,including the public.
– Who and what are the steps to take to enforce?
Is a function of the Bank – he has a troubled loan portfolio, overdue loans, unpaid interest and should work in the legal plane for the collection of these debts.
– What is currently the size of the debt? What amount was subject to restructuring?
– According to the results of the annual audit, which was conducted by Ernst&Young, the total amount of reserves for the credit portfolio granted to legal persons amounted to 184 billion. That is, almost 86% of the total loan portfolio granted to legal persons. Is the amount in question. The level of collateralization is very low: trying to restructure their assets, in the summer of last year “PrivatBank” took on balance a certain part of the fixed assets and put them in financial leasing.
– Today the Ministry of Finance has published the letter, which contains undertaken by the former owners of “PrivatBank” obligations. But earlier, Finance Minister Alexander danyluk said that these commitments were not legally binding. Will this be relevant in court proceedings for forced collection?
Perhaps this situation will comment on lawyers. But we have signed the letter. On the one hand, it is not certified by a notary, and on the other hand, it voluntarily signed the letter. Therefore, from the point of view of international legal practice, is a definite commitment that was not fulfilled.
– There is also information that the letter is a letter addressed to former owners is the NBU. What are his main points?
– There is such a letter. It was written early (a letter of the Ministry of Finance – ed.). In the letter, which was received by the national Bank, was more detailed terms of the restructuring. Namely: all credits, which today is on the Bank\’s balance sheet and which do not have real collateral, and the borrowers financial condition which, in principle, not consistent with common sense and regulatory requirements, must be translated into companies that have real revenue, are the real production activity, have a real production capacity. And sources of reference for this work should be a source for repayment of these loans. And again, they should provide a solid collateral.
But nothing was done?
– No, unfortunately.
Whether there was another audit by PricewaterhouseCoopers?
PricewaterhouseCoopers is the company that officially made the yearly audit of “PrivatBank”. The last statements, she confirmed that it was reporting by the end of 2015.
– Whether there is a big difference between data audit PricewaterhouseCoopers and Ernst&Young?
– Of course. PricewaterhouseCoopers confirmed the size of the Bank\’s capital at the level of 27 billion UAH. Ernst&Young confirmed the Bank\’s capital level, minus the almost 1 billion after the capital was made of 116.8 billion (government – ed.).
– Previously, the Agency Bloomberg reported that the NBU dissatisfied with this audit and has decided to no longer engage PricewaterhouseCoopers to audit the Bank in connection with this situation. It is really so?
The task of the auditor when it confirms that the financial statements is to confirm that it adequately reflects that the Bank\’s performance such as he gives, and they are true. And this is important not only for the regulator but also for clients. So when we look at what equity level has weaned value, again after the Bank capital was increased by 116.8 billion UAH by the state and at 29 billion through conversion of liabilities into capital, and still after that, the capital remained weaned, and on data from PricewaterhouseCoopers, which showed 27 billion of capital, such difference cannot be attributed solely to different interpretation of international financial reporting standards.
Such a difference from our point of view, lack of audit quality. Therefore, it is clear that we are unhappy. But not only are we: all potential users of any audit reports should require auditors of scrutiny, it is the responsibility of the auditor. This is confirmed by statements, primarily for users. What we have with this report? In fact, concealing the real financial condition of “PrivatBank”. Despite the fact that he had no capital, it is insolvent, the auditor confirms the adequacy of capital. And that, of course, cannot satisfy either the regulator, or any normal person that works with financial means: the client, depositor, borrower.
And this means that you will no longer engage PricewaterhouseCoopers to audit banks?
– Audit company engaged by banks. The national Bank have recommendations about how these companies should be, this is the first. And second, today, the NBU maintains the register of audit firms entitled to carry out audit in banks. Because there is a specificity and a very big responsibility. Therefore, the national Bank will initiate amendments to this register, the exclusion of PricewaterhouseCoopers from the register of companies that can audit commercial banks.
– The lack of restructuring in “PrivatBank” can affect the stability of the banking sector? What might be the consequences for the economy?
Neither sector, neither for customers nor for “PrivatBank” lack of restructuring will not have any effect. Because the Bank was fully decapitalization by the state. And today, the Bank capital is positive, the last recapitalization happens now, as the Cabinet approved the allocation of 38.5 billion UAH. Of them UAH 22.5 billion here in the coming days will go. Therefore, the Bank (the”PrivatBank” – ed.) – decapitalization, liquid and operates in the normal mode. Now he is determined his business strategy, plans for the development. Therefore, it will not affect the financial system. However, the question becomes less relevant. Because those debts, which was taken by the government is actually compensating Bank losses in the amount of 116.8 plus 38 is almost 155 billion (was invested in capitalization – ed.), they need to return. And it is the job lies in a different plane. It is a question of return of debts.
– Representative of the national Bank recently announced in a blog that every Ukrainian has to pay conditionally 3.5 thousand UAH for the debts of the former owners of “PrivatBank”. What is this number?
– If you wrote the representative of the national Bank, he, most likely, did the calculations, based on either the total population that lives in Ukraine, or from the working population. But this illustration for clarity. Because we know the level of minimum wage, we know a lot of other areas in the state that need funding. The state has spent an incredible amount of money to save the Bank, and this money must be repaid.
– There was information in the press that the decision Alexander Shlapak resign was due to the fact that he understood that the restructuring will not occur and the state is ready to go on the offensive against the former owners of “PrivatBank” in the legal plane. He, allegedly, didn\’t want to participate. Had such a motive?
– I should say that Alexander Dolgopolov led the Bank in the difficult period immediately after nationalization, when it was a definite shock for everyone and for clients and the public. It is my job stabilization performed perfectly. But the task was difficult, it was necessary that the Bank has been steadily working and serving customers. More than half of the transactions of our banking system. The task of stabilization had been implemented. Today other tasks facing the Bank as soon as possible to decide on the business plan with the business strategy for the coming years. The second is, of course, the return of the debt, the work with troubled assets. Probably, these tasks need to look for a man, a professional in these areas. So I do not think that the decision to resign has undercurrents hidden reasons.
– And how to choose a new head of government? Was the version that the national Bank of Ukraine has decided that it must be an Expat.
– No (laughs). Competence to choose the head of the Board entirely belongs to the Supervisory Board of “PrivatBank”. They could declare a nationwide competition or internal – that is their business. It is clear that there is no need to get on with that, and to do it as soon as possible. So they should announce a competition to determine the candidates, and to appoint a new chair. And after that happens, he will have to undergo an interview at the Bank, such internal regulations. We will communicate with him, and I hope you will see in the near future.
– What requirements will require a national Bank to the candidacy of the head of the Board of “PrivatBank”?
– We have, first, a checklist of standard requirements. The applicant must understand the banking market and the specific banking institution, it needs to have broad knowledge, including in such areas as debt collection. You need to have experience in developing strategic plans, financial plans, because it\’s important to “PrivatBank”. Again, our banking environment is recovering, the competition is gradually increasing. You need to be able to keep competitive advantages of the Bank. Therefore, the task before the new head is very large. Thus, in the first place, experience and, of course, goodwill.
– Previously the acting head of the NBU Yakov Smoliy said that one of the tasks of the new head will be cleansed of “PrivatBank” on toxic assets. What kind of assets are we talking?
– We were talking about the same loan portfolio which has been provided by entities associated with the former owners. This portfolio has problems in service, he has no collateral. Under it formed one hundred percent reserves, but this portfolio on the Bank\’s balance sheet is. And with it the need to do something. And the only thing you can do is to start work on return of debts. Thus, returning part of the funds to reduce this problem the volume of toxic assets on Bank balance.
Platform CETAM announced the signing of an agreement with PrivatBank asset sales, particularly those as large as the stadium “Dnepr-arena”, the resort “Bukovel”. The situation with the restructuring will affect the timing of conclusion of the contract or there is no longer an issue?
– I don\’t see a direct connection, it\’s a little different. Indeed, last year part of fixed assets, including integral property complexes, which were transferred to the “PrivatBank”. It is clear that it is not banking to manage the stadium, for example. Therefore, these assets need to do something. Two options: either to give the management of, or sell. Because the Bank need live media. But before you put the assets up for sale or auction for the transfer of management to conduct their assessment. Because the main question, one of the key, which remained in the report of the independent auditor (E&Y, EDS.), it is that evaluation of all these assets is not confirmed. Therefore, the first task that stands in front of the Bank today, to make an inventory of these assets, to check the documents, which are available (if they meet the requirements of the legislation), and make a new estimate. And only then can you do the next steps as, in particular, put up for sale.
That is, the main goal is to relieve the Bank from extrinsic to it?
Yeah, these assets today is not generating cash flow. Here they have the balance of the stadium. What? The stadium is impossible to pay off depositors who have deposits with you, and you must pay them interest. That is, the Bank must obtain cash.
– And we already know how much can help out “PrivatBank” from the sale of all these assets?
Only after the evaluators will provide them with correct evaluation, you can decide how it will be selling and what amount of money can bail out a Bank.
– If it comes down to sales, how much their new owners will be able to be sure the legal purity of asset and that the former owners of “PrivatBank” will not challenge their property rights?
We see today that the former owners (the”PrivatBank” – ed.) launched a broad front appeal of virtually all state decisions. And conduct such legal and media campaign against the government decisions. So I can\’t say anything that will do about the former owners, but the legal examination of documents needs to be done. Documents, I hope, all properly, in accordance with the law, and the new owners, I\’m sure, will be a bona fide beneficiaries.
– According to the data of E&Y, about 9 billion is the amount submitteds claims to “PrivatBank” by the former owners. Do this amount it appears?
– It claims not only the former owners but also individuals who were associated with the former owners, these claims relate primarily to exchange uncomplicated obligations for shares of banks.
– It is known that attracted an international company Kroll, which must prepare a report on the basis of which must begin criminal prosecution of the former owners of “PrivatBank”. When it might be ready?
– Previously we said that the work on completion of the analysis should be completed before the end of September – beginning of October. The task of the Kroll company on a larger scale. It should monitor the activities of the Bank for a long period of time and to provide answers to basic questions: what amount of money, in what period, where it was directed. Who did it and for whom. So this is a massive job. It is clear that today we are already seeing elements of this puzzle, so to speak, and to begin work on recovery to commit actions aimed at the return of the lost state funds, no need to wait for September. It is already possible to do today, just at the end of the year or fourth quarter we will get a more comprehensive report, which will show more clearly how it all began. And what is over, we\’ll already see.
– This report will be handed over to law enforcement?
– Is necessary.
– It is possible that the persecution of former owners of “PrivatBank” will be started even before receiving this report?
Since the individual elements are already visible today, and “Privat”, like any other commercial Bank, and especially the state, he is obliged to begin work to recover debts. Therefore, it needs to start it right now, and I\’m sure will start. Second, in relation to the prosecution, we have the law and it is the same for everyone. In our opinion, and again, looking at the numbers that we see in the independent auditor\’s report, we understand that the insolvency of “PrivatBank” – is its loan portfolio, which were provided to legal entities that were somehow associated with the former owners.
– Some materials presets you have given law enforcement agencies?
– Again, the job Bank today. He national Bank as “PrivatBank” and any other the Bank may require a plan for dealing with problem debts. The Bank has the plan to develop and implement. This is the challenge that stands before him. We, as regulator, will control how this is done and really the only thing we require it to be under the law and there are no delays.
But PrivatBank has transferred to law enforcement materials?
– I can only say that the Bank is working in this direction.
– There was information that the capital of the former owners has been particularly active in output in the last period of time before nationalization. Is that so?
– Not quite. We believe that the withdrawal occurred much earlier than 2014-2015 years. Funds likely headed to the acquisition of assets outside of Ukraine. And in the last days before the nationalization was really going some, in our opinion, illegal actions. “PrivatBank” had its own correspondent accounts in banks of Latvia and Cyprus. Now, funds from these accounts in one night disappeared, and instead appeared receivable. We are talking about 12 billion UAH. It happened in the last days before the nationalization. In recent days, the funds that were in accounts related to the Bank persons were withdrawn from the Bank. But it is certainly not the principal amount. Because we talked about 184 billion impaired portfolio, and these 12 billion also is part of them.
– How much time do you expect will take restructuring “PrivatBank”, now that it is clear that it will follow the court scenario?
It is very difficult to predict. It is clear that this is a very large amount of the missing assets. And if you look at other countries where there are similar, but in smaller quantities, it takes 3-5 years, it is not so fast. But the Bank will develop its own way, will improve your results, and work with assets will be carried out in parallel.
– It was reported about intention in the future to offer “PrivatBank” to international investors. Perhaps we already know who im interested in?
– Still no concrete negotiations were not. We understand that if today the Bank is right to restructure, he could be interesting in the future. Again, this perspective is not today, not tomorrow. Perhaps three to five years, when the Bank will get rid of all the excess. When there will be no toxic assets nor any fixed assets nor any of the stadiums. When this is the banking model that is able to generate profit, then it will be interesting to potential investors.
– There is also the situation with the banks in Ukraine, which can also be nationalized?
– No. The law stipulates that nationalization may be, if the Bank is systemically important. We have three such banks, and all three already state. So we have nobody to nationalize. And second, we hope that the system is already reborn. Nationalization “PrivatBank”… Actually, why it happened? It was due solely to the necessity to keep financial stability. “PrivatBank” is 20 million customers, 35% of the Deposit portfolio of individuals, 54% of the transactions of the entire banking system. If no decision has been made about nationalisation, given that the Bank was insolvent, it had to be transferred to the guarantee Fund. And it should be understood that all these transactions would be stopped. Yes, investors would have received 200 thousand UAH. But taking into account the number and amount, all of this could destabilize the financial system.
I would like to mention that the other operating in Ukraine, banks have also resume their work. We are already completing the diagnosis of small banks – good results, because many of them have a good quality of assets. But, I must say that there is no threat. In particular, two of the Bank recently decided to self-destruct, and the market didn\’t even notice. Because their influence is minimal.
– Are there any changes to the Deposit guarantee Fund?
Since the main volumes of state guarantees were paid, today the main task of the Foundation is the realisation of assets (banks – ed.) and then the direction of the proceeds to the satisfaction of other creditors, because they left. In the end, the Fund should compensate the losses of the state because 87 billion – is in fact public funds. Therefore, its main task today is the implementation of assets. It is not so easy. Today, the Fund changed the structure, approaches, procedure. All the changes that have occurred, aimed at optimizing the procedures for the sale of assets. Today, the Foundation has completely changed the approach to the assessments. We\’re talking about how to exhibit at the price that is to accelerate the process of implementation and the potential refund.
But one more question which is important now and for the Fund and for the NBU. You know, there is a list of banks on which the court has taken illegal decisions that have blocked the process of liquidation, and the Fund can do nothing.
– Some of the banks it?
For example, “Financial initiative” Bank “unison”, “Kievan Rus”, “Premium”, “Ukrinbank”. Here at “Ukrinbank” unprecedented situation: the Fund paid to its investors UAH 1.8 bn, the courts blocked the elimination and all. What\’s the risk? Until the Foundation can begin the process of eliminating lost assets. They are reregistered, we all know how it\’s done. The Fund loses the potential to return funds to depositors, and the state.
In respect of the Bank “Michael” is also a problem?
– Of course, they are not solved. The portfolio, which was sold in spite of all prohibitions of a third company, and today the courts between it and the Fund are continuing. But the decision is not in favor of the Fund. Actually the credit portfolio, which is working and repayment which could be a source for compensation of losses and disbursement of the remaining depositors in the queue, it is blocked.
In respect of Russian banks what is the situation? As far as I know, “VTB” and can not find a buyer for Ukrainian daughter?
The situation from the point of view of customers difficult all three Russian banks. Because banks are big, and the buyer must be solid, stable, in the event of the acquisition of these institutions to effectively manage. The fact that they do a large amount of assets and loans, with which to work. The General economic situation, the situation around the Russian banks, in particular, has led to the fact that some borrowers stopped paying their debts, because it is a “gate”. But I want to say that these banks are deposits of our compatriots. And because the source of the return of these deposits may be partly the repayment of the loans. Hence, when the borrowers say that we will not pay for Russian banks, they do not want to contribute to the return of deposits to his own countrymen. But the banks themselves are working in this direction, somewhere sell the collateral. They significantly since the beginning of the year have reduced the amount of its obligations.
– How exactly?
– 9 billion UAH. Therefore, the situation is under control.
Media today announced the receipt of proposals for the purchase of “savings” from a citizen of Cyprus and Belarus Victor of Protopine. You acknowledge?
– Indeed, this package of 30 June came to us. But we haven\’t studied.
– This means that the consortium of investors (led NorvikBank – ed.) decided to withdraw from the transaction?
– We have examined there are packages (purchase) “savings Bank” and “Prominvestbank”. We are still working. Came in new package, we will see what is written there. Then we can comment.
– While no single package is not received the approval of the NBU?
– No, not yet.
– When at the time of approval can be expected?
– It\’s hard to say. The packages are very large. Now let\’s see what the new service and whether this means that the old (“savings Bank”) will be withdrawn. Then I will be able to comment. If this is a completely new package, we start over all the work, and it is no less than another fortnight.
– There was a takeover “Taskommerzbank” problem Bank “Diamant”. There all went without problems, or the owners of the “Diamond” also have withdrawn the funds?
– There is a form of settlement provided by the law – partial transfer of assets and liabilities from an insolvent Bank at the Bank that works. 1 billion is the amount that the Fund was required to reimburse in accordance with the law (investors who have invested up to UAH 200 thousand). This amount “Diamantbank” was selected assets (real estate) and just transferred from one Bank to another. The remaining part is left in liquidation. The national Bank has already signed the corresponding decision, and the Bank is liquidated. “Taskommerzbank” took on themselves a customer base and assets, some of which may be necessary for him, and some still they will be implemented for compensation of payments to depositors. The DGF in the end save a billion hryvnia.
– There is reason for the emergence of new banking institutions in Ukraine?
– Frankly speaking, we don\’t see. Because the banking system cannot exist by itself. It is part of the economy. Today her mission is to encourage economic development through lending, but lending is reasonable, and then determine whether you need more jars. The economic basis for the emergence of new banks now no. The creation of new banks would be economically unreasonable.
– And is there any reason to switch to private property of state banks?
– Have a strategy in February 2016 was approved by the Cabinet, it provides that the state will gradually out of the banks, and it is absolutely the right move. The first candidate, according to the strategy, to become a commercial Bank “Ukrgasbank”. He is size small and it was more commercially oriented. Therefore, the management of the Bank, the Supervisory Board, the Ministry of Finance, all working to a planned strategy steps have been implemented.
– The company can call who may interested in this Bank?
– Can\’t talk now.
Now Yakov Smoliy was appointed acting NBU Governor, what has changed since his arrival to the post?
– If you look at the team that is now working in Ukraine Yakov Smoliy came very first. With his arrival that things started to change since the end of 2014. He is a very professional person. Personally, I know him for many years. Therefore, no purpose, no job our team has not changed, we work in the vector that was defined previously. Our mission and objectives have not changed.
– Is there an understanding of whether the return of the NBU Valeria Gontareva?
– Valeria Alekseevna resigned. Therefore, this decision is final.
– And do you know when the head of the NBU may be appointed on a permanent basis?
It is the competence of the President and the Verkhovna Rada.
– Was the information that the likely candidate – Oleksandr Shlapak, can you confirm?
I can\’t, as I said, takes the candidacy of Mr. President, it is his exclusive right.
Interviewed By Elena Golubeva