PrivatBank, the Ukrainian bank that used to be owned by a supporter of president-elect Volodymyr Zelensky, believes that it has a strong legal case to prevent its nationalisation being undone.
Days before Volodymyr Zelensky won Ukraine’s presidential election, a court in the country declared that the nationalisation of PrivatBank was illegal — a boost to Ihor Kolomoisky, its former owner who has close ties to the incoming president.
“The legal and political situation seems to be changing but the bank’s lawyers are confident in its legal position,” said a source close to PrivatBank. Meanwhile, the bank has seen nothing unusual in depositor outflows, according to the source, despite the news about the court case.
Engin Akçakoca, head of the bank’s supervisory board, told GlobalMarkets: “Reversing the nationalisation will mean that those who have invested capital in PrivatBank— the state—will have to have it returned to them,”
“In mathematical terms, or in terms of accounting, if the bank returns this capital, it will again return to negative capital indicators. That is, someone will have to again capitalise this bank. This would be a blow to the financial stability of Ukraine.”
The EBRD and other multilateral institutions see the decision to take the bank into state control as an important plank of Ukraine’s recent reforms.
Those around the lender are concerned that Kolomoisky’s allies are gaining influence over the judiciary, as president Petro Poroshenko, his nemesis, departs. But this may not allow him to win a large chunk of compensation for the nationalisation or to take back his share in the bank.
Ukraine’s central bank plans to appeal the court’s April 18 ruling. The court ruling is timely because of Zelensky’s ties to Kolomoisky. Best known as a comedian, the incoming president received copious airtime on a television channel owned by the oligarch in the run-up to the election.
According to Moody’s, the links between the two “pose a specific risk to Ukraine’s reform agenda”. The fear is that Zelensky could exert influence on the legal system in Kolomoisky’s favour.
“The crucial question is who makes decisions for Zelensky. Is he an empty suit or is there a cabal behind him?” said Mary Mycio, president of Kipling Global Media and a commentator on Ukraine.
But a partner at a Ukrainian investment firm said: “Zelensky will play a much more independent game than expected.”
Moody’s said: “Although we attach a low probability to this scenario, it would have a material adverse impact on the country’s credit profile if it were to materialise.”
Western institutions are supportive of the nationalisation and concerned by the potential of it being unwound. The EBRD indicated that the nationalisation had “already resulted in stronger performance and sustainability of the entire banking system”.
In December 2016, Ukraine nationalised PrivatBank, its largest bank, declaring that this saved the entire banking system. The state still owns all the shares, but the new supervisory board aims to sell the bank to “an appropriate investor” by 2022. Kolomoisky has been challenging the original decision.