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Last week, the National Bank of Ukraine (NBU) filed an application to the Cabinet of Ministers, asking for money to create a “bad bank” (or the “sanation” bank, as it is called here – that is, the bank to be used for financial rehabilitation of credit institutions in trouble). Although by itself it is going to be a typical “bad bank”, the model which was frequently discussed throughout the crisis: a financial institution used to repurchase problematic credits from banks.
At the moment, the NBU’s representatives refuse to disclose how much money they asked for, saying that the final amount is to be reviewed later. “The documents to create the Bank went to the Cabinet of Ministers and the Verkhovna Rada’s banking committee. Only upon their consideration by colleagues it will be possible to talk about financing of the new structure. It is possible that the amount will be reviewed, so it will be disclosed only after it is agreed upon by all parties. We’ve done the first step: we described basic principles of the sanation bank’s operations”, - said one of the NBU supervisory board’s members.
The mechanism is simply repurchasing of problematic (doubtful or bad) credits from Ukrainian financial institutions. It is still unclear who exactly will be able to dispose of those bad credits – either all institutions with no exceptions, or only problematic ones.
The bank won’t be created “from the very beginning”: most likely, it will be based upon one of many problematic banking entities. “After special normative standards for that bank are drawn by the National Bank of Ukraine, it will be able to issue its financial securities (most likely, bonds) and exchange them for “bad assets” of other financial institutions. The sanation bank will recover pledges for those credits through courts. It will then sell them and use the proceeds to repay interest on those financial securities. Bonds will be traded on the secondary market: the financial market participants will be able to either sell them with discount, or wait for them to mature”, - informed president of the Ukrainian Analytical Center Alexander Okhrimenko.
Experts have different hypothesis on true volumes of the government’s inflows to the sanation bank. “I presume, those should be no less than total amount of liabilities of both “Nadra” and “Ukrprombank” – that is, about 25 billion hryvnas*”, - said Vitaly Shapran, deputy director of the rating agency “Expert-Rating” during his interview to “Delovaya Stolitsa”. Alexander Okhrimenko added: “The money is needed only for financing of the institution’s budget, which is no more than 5-10 million hryvnas per year. But what is more important is to meet the NBU’s special standards for the sanation bank and its financial securities. Losses from its operations should be fixed at the Central Bank’s balance, and those may reach 100 billion hryvnas. In fact, we’re talking about money “frozen” at the NBU that will be unblocked in 5-7 years”.
Financial experts predict that even with prompt allocation of funds, it will take at least 10-12 months to create the sanation bank. Even so, this will be a “lifebelt” for separate banks, not for all of them. And of course, it won’t solve one of the biggest problems of the economy: recovery of crediting in the banking sector. “As of the beginning of May, the volume of debts overdue was 73.4 billion hryvnas while capital adequacy in banks twice exceeded the normative standard. This means that the financial sector has enough liquidity – it just doesn’t want to lend. And even a 20%-sale of overdue debts to the sanation bank won’t improve the situation with the economy’s financing”, - said Viktor Shulik, chief financial analyst of “Credit-Rating”.
Most likely, final decision in respect to the sanation bank will be made no sooner than September.
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