UKRAINE MINFIN ON BANK RECAPITALIZATION

UNCLAS KYIV 001345 SENSITIVE SIPDIS DEPT FOR EUR/UMB, EEB/OMA E.O. 12958: N/A TAGS: EFIN EREL ECON ETRD PGOV PREL XH UP SUBJECT: UKRAINE MINFIN ON BANK RECAPITALIZATION SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION ¶1. (SBU) Summary. Ukraine's Ministry of Finance confirmed to us that recently nationalized UkrHaz and Rodovid banks, the 17th and 20th largest in Ukraine respectively, would soon receive new management and supervisory boards. The period of temporary administration would be extended at a third GOU-owned bank, Kyiv Bank, due to the need to "completely rework" its structure and management. The National Bank of Ukraine (NBU) also extended the period of temporary administration at Nadra, Ukraine's second largest domestic bank, in order for it to continue debt restructuring. Despite rumors in the media that a fifth bank would be put on life support, Ministry officials said Ukrprombank was "dead," with "no chance" to come back to life through recapitalization. End Summary. ¶2. (SBU) On the sidelines of talks with Senate Foreign Relations Committee STAFFDEL Branegan on August 12, Ukraine's Ministry of Finance expressed hope that new management would soon take over nationalized UkrHaz (Ukraine Gas) and Rodovid banks, recently recapitalized with domestic treasury bonds worth UAH 3.1 billion ($390 million) and UAH 2.8 billion ($350 million),respectively. Ministry officials told us that two appointed CEOs would be taking NBU-mandated examinations this week, to formally qualify for their new duties by the end of August. New supervisory boards (equivalent in authority to boards of directors at a U.S. bank) were also expected to be announced for UkrHaz and Rodovid. ¶3. (SBU) Rodovid's new-found solvency was the basis for a recent political rally staged by PM Yulia Tymoshenko. Shortly after Rodovid received state recapitalization funds, Tymoshenko addressed over 25,000 depositors at Kyiv's main exhibition center. Tymoshenko told the invited crowd that all Rodovid depositors would receive their money, and she emphasized that Ukraine's banking system would continue to be stabilized by her government. ¶4. (SBU) Separately, Tymoshenko's state recapitalization committee (which includes representatives from the IMF and World Bank) injected domestic treasury bonds worth 3.5 billion hryvnia ($440 million) into a third financial institution in late July, Kyiv Bank. Nonetheless, Kyiv Bank was still struggling, according to the Ministry, causing the NBU to extend the term of the bank's temporary administrator. Ministry officials said that Kyiv Bank still needed to "completely rework" its structure and management. ¶5. (SBU) Turning to developments at Nadra, Ukraine's second largest domestic bank, Finance Ministry officials said that an extension of the temporary administration period will allow for outstanding restructuring talks to continue. Ministry officials hinted that a recapitalization program for Nadra had been studied within the GOU, but the state recapitalization committee would not debate a plan until Nadra's creditors came to terms with the bank. While praising Nadra's temporary administrator Valentina Zhukovska for her management acuity, Ministry officials said PM Tymoshenko had informally appointed well-known banker Igor Franzkevich to oversee Nadra's outstanding debt restructuring. Franzkevich is considered a likely candidate to become Nadra's CEO in the event of GOU recapitalization. ¶6. (SBU) Finally, Ministry officials revealed that Ukrprombank will be liquidated soon, despite public calls from former NBU director of liquidation and current temporary administrator Konstantin Rayevskiy to recapitalize it. Ministry contacts unequivocally stated that Ukrprombank is a "dead bank, with no chance to survive." The NBU has proposed transferring Ukrprombank's assets to the state-owned Oshchadbank, with the difference between Ukrprombank's assets and liabilities covered by Ministry of Finance treasury bills. A decision on the bank's fate may be passed by the state recapitalization board and the Cabinet of Ministers as early as next week. ¶7. (SBU) Comment. Consistent with statements from the Ministry of Finance, IMF officials confirmed to us on August 12 that the NBU and GOU are now exercising broader authorities, following the passage of an IMF-supported law on Ukraine's financial sector that became effective August 5. This new law, which the IMF believes provides a "deeper and richer toolkit" for bank restructuring, should ultimately prove a boon for Ukraine's taxpayers. It allows for banks such as Ukrprombank to be liquidated, keeping intact resources to meet other financial sector needs. PETTIT