AFP - Ukrainian President Petro Poroshenko urged people yesterday not to panic after his government nationalised the country’s largest private bank to avoid a rapid financial meltdown.
The former Soviet republic’s cabinet on Sunday took over PrivatBank -- a lender that held one-third of Ukrainians’ bank deposits and even had branches in the Baltic states.
The bank was owned by billionaire and presidential foe Igor Kolomoyskiy. Yet the tycoon was widely reported to be heavily burdened by debts because of loans to select insiders and reliant on the state to stay afloat.
Kiev’s decision falls in line with the International Monetary Fund’s demand for Ukraine to clean up and stabilise its murky financial sector in order to achieve sustainable growth.
But it has created unease on the street about the future of people’s holdings and whether the country might enter another economic crisis similar to when Russia annexed Ukraine’s Crimea peninsula in March 2014.
A subsequent 31-month war with pro-Russia insurgents in the separatist east that has claimed nearly 10,000 lives saw the economy shrink by about 17 percent in 2014-15 and inflation soar to just under 50 percent last year.
The pro-Western Ukrainian leader said in a statement that the situation was under his full control.
“I appeal to you, dear PrivatBank clients -- keep calm,” Poroshenko said.
“The new (state) administration is already taking over the levers of power -- right now, this very hour and minute.”
Ukraine’s Central Bank had wanted Kolomoyskiy to refinance his bank with billions of dollars if he wanted to remain its owner.
There were fears that PrivatBank’s fall could have ignited a wider crisis in the financial system akin to the turbulence in the United States in 2008.
But the tycoon never came up with the money and Kiev’s patience snapped on Sunday.
Finance Minister Oleksandr Danyluk said the government’s decision “will help preserve the savings of nearly 20 million PrivatBank clients.
“All of our international partners support this move, including the International Monetary Fund, the European Bank for Reconstruction and Development, as well as the government of the United States,” the finance minister said.
Ukrainian Central Bank chief Valeria Gontareva told reporters that PrivatBank had miserably failed a series of stress tests and was in a $4.2-billion (4.0-billion-euro) hole in April 2015.
She said 97 percent of the bank’s loans at the time had been issued by Kolomoyskiy to his business partners who might either have not paid them back or had done so on preferential conditions.
Gontareva said the bank’s debts grew to $5.6 billion by December 1.
Kolomoyskiy himself has yet to comment.
But one PrivatBank manager on Sunday called the government’s decision a consequence of “media attacks” led by political powerbrokers who opposed Kolomoyskiy.