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Banks need twice as much money than the NBU stress test showed
29 December 2014
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The banking system is in need of recapitalization of 170 billion UAH, according to the ICU banking group annual report. And 135 billion UAH of additional infusions is required by banks from the top-35 list. This is twice the amount of 66 billion UAH, which is needed for recapitalization according to the NBU. It is noteworthy that the ICU group of companies has been established by current chair of the National Bank, Valeriya Hontarieva. After she went to work at the NBU, the company bought back her shares.

Helping Hand

Back in September, the NBU reported that according to the results of the stress tests, banks of the group of the largest need to be recapitalized with 56 billion UAH. The need for additional capitalization of 20 banks from the group of major banks was estimated by the regulator at 10 billion UAH. Conditions of the "worst-case" scenario incorporated into the stress test proved to be too optimistic, analysts say. The state of the financial institutions has been analyzed on the basis of two forecasts, the baseline and the worst. The baseline scenario assumes an average exchange rate of hryvnia in the current year at the level of 10.8 USD/UAH and 11 USD/UAH at the end of the year. In the worst case scenario the average annual rate of 12.1 USD/UAH and 12.5 USD/UAH at the end of the year were forecasted. Now, the worst prognosis would be accepted by banks with cheer.

66 billion UAH will be insufficient to carry out additional capitalization of top 35 banks.

Among the major financial institutions that need to be additionally capitalized more than others, appear Privatbank, Ukreximbank, Oschadbank, Delta Bank, VTB Bank, Ukrsotsbank (TM UniCredit), Prominvestbank and Nadra Bank. Most of them have already increased the capital and or met corresponding decisions.

The rich also cry

The depreciation of hryvnia to 16 USD/UAH makes even those who have successfully passed the stress test think about additional capitalization. One of those who have successfully passed the evaluation by the NBU is FUIB. However, the bank's chairman of the Board Serhiy Chernenko said that although they do not require additional capitalization, the financial institution will still have to increase capital by more than 730 million UAH. To achieve this FUIB agreed to extend the subordinated debt in the amount of 482.3 million UAH for another seven years. Another option, which allows the financial institution to increase the regulatory capital is the association with the Renaissance Credit Bank. Thus FUIB intends to increase its capital by 255 million UAH.

Grab your things and go out

Foreign banks, including those with the Russian capital, cause the east concerns of ICU today. These financial institutions are getting enough money from the parent structures. The Cabinet of Ministers of Ukraine has declared its readiness to pour 11 billion UAH into the state-owned Oschadbank. Some commercial structures can also expect governmental support. But the salvation of the financial institutions from the budget funds will depend on what role they play in the banking system, said Anna Apostolova, the head of the IBI-Rating department for finance ratings.

"The support, if any will be necessary, will be provided only to the banks that hold the banking system, because their collapse would lead to the general collapse. The most likely option would be the Government entering on behalf of the state into the group of owners of the bank through the additional capitalization of the financial institution through the exchange of additionally issued shares for government bonds,"- she says.

At the same time, it is now clear that the budget for 2015 will be very limited. According to the latest version of the IMF cooperation program, the Cabinet of Ministers is allowed to spend up to 23.5 billion UAH and only 22.5 billion UAH for additional capitalization of banks in the following year. It is obvious that these amounts will not be enough.

Source: Capital


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