Although not that long ago, the head of the NBU V. Hontarieva assured that there is no model of "oligarchic banking" in the bank FUIB, according to financial statements of the bank as at the end of March 2015, value of the standard maximum amount of loans, guarantees and sureties granted to one insider (N9, should be not more than 5%) in this financial institution amounted to 21.76% (the corresponding violations have taken place since the beginning of 2014). Also, according to the results of the 1st quarter, FUIB violated the standard of maximum credit exposure to a single counterparty (N7): though it should be not more than 25%, in fact it equaled 28.65%.
These aspects in the work of FUIB are important not only because of the difficult economic situation in Ukraine and the hostilities in Donbas, but also given the "non-optimal" financial condition of major industrial assets of R. Akhmetov (who is known to be the ultimate beneficiary of the bank FUIB), namely Metinvest and DTEK, which had to turn to the restructuring of Eurobonds (as did FUIB at the end of 2014). Corresponding parallels arise here as though by themselves.
According to the results of the 1st quarter of 2015, the bank FUIB made a loss of 327.5 million UAH. This happened primarily due to the allowance for impairment of loans and funds in other banks (-1.64 billion UAH). But as at the end of March, loans issued by the bank to legal entities (which is 87.7% of the loan portfolio) were covered by reserves only by 12,1%, which is several times smaller than in case of individual market participants who are also focused primarily on lending to the corporate sector. This makes one assume that FUIB does not form full reserves, for example, in order to minimize the required amount of additional capitalization of the bank.
FUIB's Deputy Chairman of the Board Fedot Yeremenko in fact refuted these assumptions in the comment to FINBALANCE. And in particular, he ensured that the bank does not lend to companies DTEK and Metinvest. You can decide for yourself, how convincing the arguments and how complete the answers of FUIB's top manager are.
What caused the low level of reserves, formed by FUIB for loans to legal entities? Does the Bank, as well as a number of other market participants, not form them in full in order to minimize the need for additional capitalization? Is it, perhaps, caused by the clearing of balance through the sale or transfer of distressed assets to the balances of related factoring structures?
After the crisis of 2008-2009, the bank adheres to fairly conservative lending policy, what allowed us to generate a stable loan portfolio. In particular, the bank has been conservative with regard to the financing in foreign currency and has regularly carried out stress testing of customers for resistance to exchange risks. High quality of the loan portfolio allowed us to avoid problems with loan portfolio servicing during the crisis, which began last year, and accordingly large amounts for the formation of reserves. We do not sale and transfer distressed assets to the balances of related factoring structures.
Do shareholders of the bank FUIB plan to increase its capital in 2015? In 2016? By what amounts? Does this refer to the infusion into the charter capital or into the 2-nd level capital (at the expense of the subordinated debt)?
Now the question of additional capitalization of FUIB is not relevant. In 2014 FUIB had excessive amount of capital, what allowed us to comply with capital adequacy ratios even during the crisis.
At the end of 2014, we increased the bank's capital by extending the terms of subordinated debts. Also in the first quarter of this year, we completed the process of amalgamation of FUIB with the bank "Renaissance Credit", thanks to which we increased capital by 300 million UAH.
Now we undergo NBU stress testing, but the exact evaluation criteria are not yet known. We will make a decision on the necessity for the increase of capital after receiving the results of this stress test.
Since the beginning of 2014 until the end of the 1st quarter of 2015, FUIB has violated the standard maximum amount of loans, guarantees and sureties granted to one insider. Also as at the end of March, there has been a violation of the standard of maximum credit exposure to a single counterparty. What enterprises does this refer to in these cases? Are they included in Metinvest and DTEK? When were these loans given? What measures does the bank FUIB plan to take in order to eliminate violations of the NBU standards? How fast will it happen? Why was it not done yet (in particular, with regard to the standard N9)?
FUIB does not lend to enterprises Metinvest and DTEK both because of insider lending restrictions, and due to the fact that these holdings are focused on raising financing in the external markets.
With regard to the standard of maximum credit exposure to a single counterparty (N7), this violation arose exclusively as a result of hryvnia devaluation, and due to the fact that the currency debt was overvalued in relation to hryvnia capital. Companies that exceeded the limit had no actual increase of the debt. In addition, these companies do not belong to the SCM group.
It should be noted that such a violation occurred not only in FUIB, but also at large in many banks. In this regard, on February 24, 2015 the NBU issued a resolution No.129, according to which enforcement actions will not be applied to banks in connection with the violation of this standard, provided that this violation is caused by the devaluation of the national currency.
As for the standard N9, I can quote FUIB's Chairman of the Board Serhiy Chernenko, who has recently stated that FUIB's insider loan portfolio amounts to about 16% — those are companies of the SCM Group. Today there are two standards for insiders in the banking system. The first is for one insider, for whom more than 5% can be accounted. The second one is 25% for a group of insiders. The paradox is that all of our insiders who are different legal entities are treated as one insider. Such interpretation is the right of the NBU; it appeared even before the tenure of Stepan Kubiv and Valeriya Hontarieva.
Therefore now we have a violation of the 5%-standard, but received postponement from the regulator for several years, during which we must bring insider lending standard in line with the requirements of the NBU
What was the proportion of the loan portfolio of legal entities and individuals in the bank FUIB that accounted for the Donetsk and Luhansk regions as at end of the 1st quarter? How high was the level of problem debt there? How conscientiously do enterprises and individuals located in the territory temporarily not controlled by the Ukrainian authorities fulfill their debt obligations? How noticeably could devaluation of hryvnia mitigate for exporting enterprises the negative effect from complication of production due to the hostilities, etc.? What restructuring options does the bank FUIB offer to its Donbas borrowers? How willingly do customers agree to the relevant conditions?
Speaking about customers from the ATO zone, they can be notionally divided into three categories:
- those who moved to other regions from the ATO zone (this refers both to legal entities and to individuals).
- multiregional companies, which may be registered in the eastern region, but conduct business in the entire territory of Ukraine.
- customers who stayed in the ATO zone and continue to conduct business in the ATO zone
The latter group is the most risky one in terms of servicing their obligations. Share of such companies from the ATO zone is 7.7% of FUIB's loan portfolio. Another 1.3% account for customers from the Crimea.
As for the situation with servicing loan portfolio in these regions, up to 80% of individual clients ceased to service their debts after the beginning of hostilities in the East or the annexation of the Crimea. At the same time, the share of such clients among the corporate business is about 20%.
We understand difficulties faced by our customers in the eastern region, and provide a wide range of restructuring instruments, which allow us to facilitate their payment burden.
What can you say about the Crimea in the same context? How do you handle problem issues? Do you sell loan portfolios there? To whom? To Ukrainian or to Russian structures? Including banks? Are you trying to collect problem debts through the Russian courts? Does it bring results?
Share of Crimean customers was about 1% in the loan portfolio of the bank. Our losses in the Crimea equaled 300 million UAH, or about 60% of the total loan portfolio of the Crimea. We assess these losses as minor.
How actively did the bank FUIB lend to businesses in the 1st quarter, given the active reduction in both hryvnia (1.24 billion USD) and foreign currency (104 million dollars)? To representatives of what industries does this refer? What are your plans for the 2nd quarter? By the end of 2015?
FUIB adheres to a conservative policy and sets its priority for the effective management of liquidity. Therefore, at the moment, FUIB does not lend to new corporate clients. Taking the difficult economic and political situation and absence of the possibility of long-term planning into account, it would be irresponsible on our part to give any pledges.
Nevertheless, we continue to work with customers under loan agreements opened earlier. Since the last year, the following instruments of resource-free lending came to the fore: factoring, bank guarantees, bills of exchange. Our further plans for the resumption of lending depend on the development of the situation in the market and the possibility of attracting liabilities to the system.
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