When economic disruption exposes weaknesses in the banking sector: Nationalization of Ukraine's largest bank
- Ukraine’s largest lender stood on the cusp of insolvency, despite support from the International Monetary Fund (IMF)
- The country’s central bank felt that PrivatBank needed to be nationalized to preserve its financial stability and avoid contaminating the wider banking system
- AlixPartners was engaged when it really mattered, to help protect 20 million banking customers by ensuring a smooth transition
THE SITUATION: PrivatBank & 20 million customers at risk
The geopolitical crisis of 2014, and the resulting severe economic disruption, highlighted the already existing governance and economic weaknesses in Ukraine’s banking sector. Brave steps were taken by the new banking authorities to clean up the system, with more than one third of banks closed. However, by far the largest systemic challenge remained unaddressed.
PrivatBank represented 30% of all retail deposits in the country, over 60% of retail card payments, and its services were utilized by 45% of the population. The National Bank of Ukraine (NBU) had identified that imprudent and potentially fraudulent lending practices had resulted in nearly the entire corporate loan book being irregular, likely irrecoverable, and related to the then ultimate beneficial owners of the bank.
This resulted in PrivatBank having a capital shortfall of at least US$5.5bn. With Ukraine continuing to rely on support from the IMF and international partners to reform and revitalise its economy, urgent action was needed to prepare for a likely nationalization of PrivatBank.
THE APPROACH: Stabilizing PrivatBank to avoid financial collapse of the economy
As the full magnitude of the challenges became increasingly apparent during the course of 2016, AlixPartners was engaged by the authorities to assist in planning for an orderly transition to nationalization. This included:
-Assessing the various legal and economic options available to nationalize and stabilize PrivatBank
-Reviewing business continuity and viability, and post-nationalization governance and management
-Identifying actions necessary to preserve IT infrastructure and mitigate cyber-security risks
-Project leadership and support to the authorities in crucial negotiations with key stakeholders.
THE SOLUTION: Successful nationalization
In December 2016 PrivatBank was successfully nationalized, in a smooth transition with limited impact on depositors and markets, and to strong acclaim from international partners.
WHEN IT REALLY MATTERS: ONGOING BATTLE AHEAD
Since nationalization, AlixPartners has continued to work with the Ministry of Finance, National Bank of Ukraine, Deposit Guarantee Fund and PrivatBank to support the design and implementation of a comprehensive legal strategy.
This will both protect the nationalization of PrivatBank and pursue the recovery of assets through litigation across multiple jurisdictions, including the UK and US.