Owners will have to pay for withdrawing assets from banks - Deputy Head of the Deposit Guarantee Fund

Owners will have to pay for withdrawing assets from banks - Deputy Head of the Deposit Guarantee Fund

Which former bankers face trouble next year and whether the state will be able, if necessary, to return money to depositors of small banks was explained by Andriy Olenchyk

2014-2015 years. The Deposit Guarantee Fund was handed over 66 commercial banks. Among them one systemically important bank – Delta. And several quite large ones: Finance and Credit, Brokbiznesbank, Forum. For comparison: over the previous 11 years the Fund withdrew only 32 banks from the market.

The cleanup of the banking sector is not finished. For 2016 year the National Bank has announced the closure of a number of small and medium banks, which will add work for the DGF.

Even more tasks will arise for the Fund in connection with its program to recover money from abroad that was taken out by former owners of problem banks. On who among the former owners of financial institutions will face trouble with their assets next year and whether the state will be able, if necessary, to return money to depositors of small banks, NV was told by Deputy Head of the Deposit Guarantee Fund for Individuals Andriy Olenchyk.

– Why did the NBU start cleaning up banks in the first place? We lost a considerable number of banks, depositors suffered, and the ability to attract loans has been significantly reduced...

– Everything that has happened in our country in recent years, starting with the Maidan, has been for the purpose of getting a normal country. A normal country is impossible without a normal economy; a normal economy is impossible without a normal banking system. And achieving a normal banking system without cleaning it at this stage of ballast and garbage was impossible. One can speak of individual mistakes where in specific cases actions should have been different. But that is a question for professional discussion. In reality, there was simply no other way besides the path taken by the NBU team, which showed the political will to change.

– Recently the National Bank announced that it intends to clean out small and medium banks. You will have more work, there will be additional banks to be withdrawn from the market, and you will have to return money to their depositors. How prepared are you for this?

– I am confident that the operation of some of the medium and small banks currently assigned to risk groups will be normalized. I believe the National Bank and the shareholders will handle that task. As for those banks that will still be transferred to us, there will not be a big problem returning money to their depositors. There are forecasts about how many that might be, but compared with what we paid out in 2014-2015 years, those amounts are relatively small.

As for the large banks that posed serious financial risks to the banking system as a whole, in large measure their market history is over. Those to whom this potentially applied have already been transferred to us. And regarding banks of the first and second groups we do not expect any significant cataclysms next year. Regarding priorities for 2016 year, on the one hand we are now preparing, by creating a so-called consolidated office which is actively being formed, to work with this portfolio of assets. On the balance sheet it is about 390 billion UAH. Clearly, the market value will, unfortunately, be much lower. But in any case, this is a fairly serious portfolio of assets, and we are preparing their sale.

The second challenge is conducting appropriate investigations, in other words, working through law enforcement agencies or through direct civil claims against owners and top managers of banks. Just by filings to law enforcement agencies, the amount of claims against owners of insolvent banks has already approached 130 billion UAH. Clearly, our priority in 2016 year will be to return these funds to the state.

– Do large depositors have guarantees that they will get all their money back?

– I can say unequivocally that the guarantees the state assumed under the law will undoubtedly be fulfilled. The total amount payable to depositors for banks transferred to us in 2014-2015 years by 66 insolvent banks is around 74 billion UAH. Of that we have already physically paid out 64 billion UAH. Our liquid reserve is now about 9 billion UAH. These funds, taking into account the near-term inflows from banks, are more than sufficient to cover all the payments for the banks already in our portfolio.

As for 2016 year, if new banks arrive, according to our forecasts they will not be such giants as, say, Delta, where we paid depositors over 15 billion UAH, or Finance and Credit with 10 billion UAH in payouts. Of course, even if we cannot cope with payouts for banks that might potentially come to us in 2016 year, within regular collections from the banking system we will in any case receive the necessary credit support from the National Bank and the Ministry of Finance. So the problems awaiting us next year, unlike what happened in 2015, are not critical.

Of course, we were forced to actively borrow funds in the previous 24 months. Over 2014-2015 years we borrowed from the NBU and the Ministry of Finance, that is from the state budget, more than 61 billion UAH to date. But in general this is the usual scheme worldwide. Very often people speculate about it out of misunderstanding of how it actually works. In any country a deposit insurer accumulates a financial reserve calculated for a standard situation, that is for the average turbulence of the banking system. Then other participants in the national financial security system come into play in the person of the central bank and the finance ministry. According to our law on the deposit guarantee system, a coefficient of the ratio of own financial resources to deposits of individuals within the guarantee amount is set. Under our law this coefficient is 2,5%. If you look at the USA, Canada, Australia, the EU, under their legislation it ranges between 1-1,5%. The only thing depositors must clearly understand is that they will receive their funds in any case.

– How much have you budgeted specifically for returning funds to depositors next year?

– About 16 billion UAH. But it is not certain that we will actually need them in that volume.

– Let’s move to specific examples. There are rumors that you may hold the owner of Delta Bank liable so that he pays the bank’s debts with his property. Could that happen?

– We are working in that direction. I understand that processes of this type are not widespread, typical, or customary for our country, and there may be some skepticism. It is believed that there is a caste of untouchables who are sure it will not affect them, regardless of what they did with the banks, what damage they caused the state and, most importantly, creditors – individuals and legal entities. Fine, we are talking about depositors up to 200 thousand UAH – that’s clear, they will get their money back. But if we talk about those who invested more money? Real trust in the country’s banking system will not be restored if we cannot not only pay the 200 thousand UAH of guaranteed deposits, but also return at least part of the money to subsequent-tier creditors. It is normal if owners have to pay for withdrawing assets from banks, and pay with all the assets they have, wherever on the globe those assets are located. This is the natural state of affairs. That’s how it works in the USA, in Turkey, in the EU, in any civilized country with a more or less developed financial market and civil society. We realize this will be a difficult process. Moreover, we are talking about hundreds of billions of hryvnias.

– How will the recovery be carried out?

– Watch two processes. The first process is quite public. The DGF has started conducting forensic audits. These are special audits that were not previously practiced in the country. The word “forensic” does not even have a direct translation into Ukrainian. It refers to special audits whose purpose is to establish all the circumstances and causes that led the bank to bankruptcy and to calculate the contribution, for example, of owners and top managers to this process. We are already launching the first two pilot forensic audits – Delta Bank and Nadra. Worthy candidates. Only Big Four companies or specialized foreign firms that never worked in Ukraine could participate in the audit tenders. The tenders have taken place and winners have been selected. For Delta it is Ernst & Young, for Nadra – KPMG. Based on the results of the forensic audits (I think this will be around spring of 2016 year) we should receive materials so that, under close scrutiny and oversight from international financial organizations, primarily the IMF, and with active participation from the U.S. Department of the Treasury, we begin to recover losses from bank managers and owners.

But in addition we have now started working with a World Bank group on recovering stolen assets. Together with them specific cases will be developed that should materialize into real civil claims. This is another of the two priority areas of our efforts in 2016 year. It will be interesting, it will not be boring.

– Regarding Mykola Lahun. Can we expect that he will be forced to return the money he took out of the country?

– On our part everything necessary and everything possible will be done in this situation. We have already filed statements with law enforcement agencies about the actions of the owner and top managers of the bank. How this will work out in the end depends not only on us. It will depend on how our law enforcement agencies and our judicial system act. We will see.

– Regarding Forum Bank. Vadym Novynskyi is still trying to get it back. Is that still possible?

– I think at this stage, that is at the stage of deep liquidation, it is absolutely unrealistic. This could have been seriously discussed when the bank was problematic but had not yet been declared insolvent. The law also provides a number of scenarios by which this bank could have remained on the market later, that is at the stage of temporary administration. But none of those scenarios was implemented. There was a lot of talk and speculation then. The logic was simple. Why could we not implement a scenario other than direct liquidation, despite all the declarations, including those of Vadym Novynskyi? It’s simple. All those scenarios required real live money that would subsequently allow the bank to meet all the National Bank’s requirements. Those funds were simply not found among the claimants to save the bank.

– Vadym Novynskyi says he was ready to contribute his share, but the state refused to help with its...

– When we made the decision we analyzed exactly what funds he was realistically ready to invest in the bank. Those funds were insufficient to fully implement a rescue scenario. Although it must be acknowledged that the owner of that bank did make efforts to save it, unlike, unfortunately, many other banks that are now under our management.

NV