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Ukraine Markets Daily (April 18, 2017)

Market news

  • High Administrative Court declares NBU decision to close Finansovaya Initsiativa Bank illegitimate

Market comment

The UX index increased by 1.1% on Friday and the PFTS index was up by 0.3% (in UAH terms). The WIG-Ukraine index remained unchanged. On the interbank exchange market, the USD/UAH was down by 0.1% to UAH 26.82 (mid price), according to Thomson Reuters. The official exchange rate reported by the NBU was UAH 26.86

 

High Administrative Court declares NBU decision to close Finansovaya Initsiativa Bank illegitimate

On April 13, 2017, the High Administrative Court of Ukraine confirmed the illegitimacy of the NBU decision from June 2015 to declare insolvent and put under temporary administration the bank “Finansovaya Initsiativa” owned by the businessman Oleg Bakhmatyuk, CEO and major stakeholder of the Ukrlandfarming agricultural holding, the businessman reported according to the Intefax-Ukraine news agency. The statement is said to have been attested by Bakhmatyuk’s press-service, the Liga Business Information Agency claims. “Despite the fierce resistance of the National Bank, we could prove over the last one and a half year that the bank was artificially withdrawn from the market, though was able to function”, Bakhmatyuk maintains. The Court considers illegal the introduction of temporary administration in the bank, and confirmed that the National Bank has understated the value of the government securities owned by Finansovaya Initsiativa, therefore artificially creating the preconditions for the bankruptcy of the financial institution, the businessman said. Bakhamtyuk hopes the court ruling will uphold investors’ confidence, which the National Bank, in his opinion, has deliberately annihilated over the last two years. The businessman intends to ask the NBU for compensation of losses, and restore the bank’s operation, though estimates that returning the bank to full-fledged functioning will be a hard task after one and a half year of temporary administration. Meanwhile, Bakhmatyuk declares his readiness to dialogue with the regulator concerning the financial pretenses against him related to the insolvent VAB Bank. The businessman hopes that the dialogue on the issue, which was basically absent under the current NBU Governor Valerya Gontareva, will go for the better after the forthcoming management change at the regulator. On April 10, 2017, the NBU Head Valeria Gontareva while announcing her resignation during a press-briefing reported that Bakhmatyuk owes over UAH 10 bn on NBU refinancing to his two insolvent banks, downgrading from an allegation of over UAH 37.9 bn debt of the businessman and his companies to the banking system, made in October 2016.

Our view:

The Court’s verdict is moderately POSITIVE for Ukrlandfarming and its major shareholder, reducing the risk of material losses by the businessman and its businesses due to the standoff with the NBU over the debt of the two insolvent banks. Meanwhile, we think that the case for litigation is not over, considering that a final confirmation of the illegitimacy of the NBU changes in the valuation of the government securities held by banks risk sending contagion throughout the banking system, and more specifically reigniting the discussions around Privatbank’s takeover by the Government.