The Financial Stability Council (FSC) held an unscheduled meeting today, with IMF, World Bank, and EBRD representatives in attendance. FSC members discussed the potential impact that the court ruling that declared PrivatBank’s nationalization unlawful could have on financial stability, and talked about what to do next.
The NBU’s position on PrivatBank remains the same – the decision to nationalize PrivatBank was the only correct decision given the bank’s importance for the financial system, NBU Governor Yakiv Smolii said as he opened the meeting. The nationalization protected the bank’s depositors, including small and midsize business, and prevented risks to financial stability from materializing.
The situation has remained stable and under control in the wake of the Kyiv District Administrative Court’s ruling that the NBU broke the law when it bailed the insolvent PrivatBank out, the meeting’s participants said. The bank is operating in business-as-usual mode and is meeting its commitments to clients in full and on time.
At the same time, the court’s ruling has created legal uncertainty and, going forward, poses risks to Ukraine’s financial stability. In addition, the court’s ruling makes it difficult for Ukraine to cooperate with international financial institutions (IFIs), including the IMF, World Bank, and EBRD, and to defend the interests of the state in court hearings in other jurisdictions with regard to the compensation of the losses that PrivatBank’s former owners caused the bank and the state to incur.
Considering the risks noted above, FSC members decided as follows:
- The NBU will continue to monitor how PrivatBank operates and, together with the Ministry of Finance, will regularly inform the public and IFIs on the progress made in appealing the court’s ruling and on potential outcomes of various court hearing scenarios that may materialize going forward.
- The NBU, Ministry of Finance, and Deposit Guarantee Fund will make every effort to ensure that the appeal hearings are as open and transparent as possible, as the public interest in this matter takes precedence over the need to maintain bank secrecy.
- The NBU and Ministry of Finance will look into the possibility of removing the bank secrecy label from the information about NPLs and operations that gave rise to NPLs in state-owned banks, including by amending relevant laws.
- The NBU, Ministry of Finance, and Deposit Guarantee Fund will update their action plan to defend state interests in subsequent court hearings so that it takes into account the Kyiv District Administrative Court’s ruling.
For reference
PrivatBank’s losses from lending to businesses related to the former owner are in excess of 6% of Ukraine’s GDP for 2016. To bail the bank out, the government spent over UAH 155 billion in taxpayer money. That translates to UAH 3,500 per capita.
The decision to nationalize PrivatBank, and other decisions in this regard were prepared, coordinated, and approved by relevant government authorities in strict accordance with Article 41.1 of the Law of Ukraine On the Household Deposit Guarantee System.
This decision protected over 20 million Ukrainian citizens who keep their money in this bank and use its services. That includes, in particular, 3.2 million pensioners and 1.6 million individuals from vulnerable social groups. All of these individuals have retained full access to their bank accounts.
About the FSC
The FSC was established by decree of the President of Ukraine in March 2015. The FSC comprises the NBU Governor, the Minister of Finance of Ukraine (the co-chairs), Head of the National Securities and Stock Market Commission, Head of the National Commission for State Regulation of Financial Services Markets, the Managing Director of the DGF, a Deputy Governor of the NBU, and a Deputy Minister of Finance of Ukraine.