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Legal Implications of Nationalization of PrivatBank


Oleksandr Vygovskyy, attorney at Ilyashev & Partners Law Firm
Source: RBK-Ukraine

The procedure of nationalization of a bank (bringing an insolvent bank from the market with participation of the State) is stipulated by the Article 41-1 of the Law of Ukraine “On private persons’ deposits insurance system” adopted on February 23, 2012. In the course of this procedure bringing an insolvent bank from the market takes place at the expense of the state budget and/or resources of a state bank.

The State acquires the title to the bank’s shares upon expiration of two-day term from the moment of commencement of such procedure. Paying up of stocks shall be carried out under the deferred payment terms. At the same time the State may either transfer monetary assets to the charter capital of the bank or convert the state internal bonds into the shares of such bank (which will likely happen in the case with PJSC Privatbank). Following acquisition of the shares the bank (upon engagement of independent experts or auditors) must develop a restructuring plan with consideration for best international practices to ensure its further profitable activities.

Nationalization of PJSC Privatbank (which holds almost a third of the deposits kept by individual persons in Ukrainian banks) is related to its shareholders’ failure to perform the plan of the bank’s additional capitalization (according to the NBU current capital requirements of the bank constitute UAH 148 bln) and with the letter sent by the shareholders of PJSC Privatbank to the Cabinet of Ministers of Ukraine with the request towards the state to bring the private assets of the bank under the public ownership of the State.

As may be judged from the press-release published at the web-site of the regulator, the National Bank of Ukraine turned to the Cabinet of Ministers of Ukraine with the proposition to transfer PJSC Privatbank (as a systematically important financial institution) into the state ownership. At its meeting on December 18, 2016 the Cabinet of Ministers of Ukraine approved the decision on acquisition by the state of the share in the capital of PJSC Privatbank. According to this decision 100% of the bank’s shares will be owned by the State, as represented by the Ministry of Finance of Ukraine. In such a manner all the conditions legislatively stipulated for commencement of the mentioned procedure were observed.

The declared changes of PJSC Privatbank’s activities will, for the time being, be related to replacement of the bank’s Management and Supervisory boards. The new shareholder (the State) will ensure smooth operation of the bank and soundness of assets kept at the current, deposit and card accounts of legal and natural persons, maintenance of credit cards issued by the bank, safety of the deposits kept in this bank – based on the legal provisions nationalization must influence their accessibility. The bank’s clients receive guarantees of protection of their deposits to which (same as before) the legislative guarantees of deposit compensation (stipulated by the Law of Ukraine “On private persons’ deposits insurance system”) apply.

What is more, matter-of-factly today, the lawmakers initiated a draft law on introduction of amendments to the Law of Ukraine “On banks and banking activities” related to the state guarantees of individual persons’ bank deposits (No. 5553 as of December 19, 2016) which is directed at strengthening protection of interests of the depositors of PJSC Privatbank transferred into the state ownership. According to this draft law the deposits made by the individual persons to the state-owned banks are insured:

а) in the amount not exceeding the ceiling amount of monetary compensation related to the deposits (i.e. up to UAH 200 000.00) – pursuant to the Law of Ukraine “On private persons’ deposits insurance system” (which means that corresponding compensation will be carried out by the Deposit insurance fund under the terms stipulated by the law);
b)within the sum not exceeding the abovementioned ceiling amount, – by the state.

So, in case of adoption of the said draft law the state will guarantee settlement of deposit contributions made by the individual persons in any volumes, i.e. the guarantees will be the same as for the depositors of another state-owned bank, JSC Oshchadbank.

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