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09KYIV1345, UKRAINE MINFIN ON BANK RECAPITALIZATION

August 13, 2009

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Reference ID Created Released Classification Origin
09KYIV1345 2009-08-13 14:45 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Kyiv

VZCZCXRO1704
PP RUEHDBU RUEHIK RUEHLN RUEHPOD RUEHSK RUEHSL RUEHVK RUEHYG
DE RUEHKV #1345 2251445
ZNR UUUUU ZZH
P 131445Z AUG 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 8263
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUCNCIS/CIS COLLECTIVE
RUEHZG/NATO EU COLLECTIVE

UNCLAS KYIV 001345 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR/UMB, EEB/OMA 
 
E.O. 12958: N/A 
TAGS: EFIN EREL ECON ETRD PGOV PREL XH UP
SUBJECT:  UKRAINE MINFIN ON BANK RECAPITALIZATION 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION 
 
1.  (SBU) Summary.  Ukraine's Ministry of Finance confirmed to us 
that recently nationalized UkrHaz and Rodovid banks, the 17th and 
20th largest in Ukraine respectively, would soon receive new 
management and supervisory boards.  The period of temporary 
administration would be extended at a third GOU-owned bank, Kyiv 
Bank, due to the need to "completely rework" its structure and 
management.  The National Bank of Ukraine (NBU) also extended the 
period of temporary administration at Nadra, Ukraine's second 
largest domestic bank, in order for it to continue debt 
restructuring.  Despite rumors in the media that a fifth bank would 
be put on life support, Ministry officials said Ukrprombank was 
"dead," with "no chance" to come back to life through 
recapitalization.  End Summary. 
 
2.  (SBU) On the sidelines of talks with Senate Foreign Relations 
Committee STAFFDEL Branegan on August 12, Ukraine's Ministry of 
Finance expressed hope that new management would soon take over 
nationalized UkrHaz (Ukraine Gas) and Rodovid banks, recently 
recapitalized with domestic treasury bonds worth UAH 3.1 billion 
($390 million) and UAH 2.8 billion ($350 million), respectively. 
Ministry officials told us that two appointed CEOs would be taking 
NBU-mandated examinations this week, to formally qualify for their 
new duties by the end of August.  New supervisory boards (equivalent 
in authority to boards of directors at a U.S. bank) were also 
expected to be announced for UkrHaz and Rodovid. 
 
3.  (SBU) Rodovid's new-found solvency was the basis for a recent 
political rally staged by PM Yulia Tymoshenko.  Shortly after 
Rodovid received state recapitalization funds, Tymoshenko addressed 
over 25,000 depositors at Kyiv's main exhibition center.  Tymoshenko 
told the invited crowd that all Rodovid depositors would receive 
their money, and she emphasized that Ukraine's banking system would 
continue to be stabilized by her government. 
 
4.  (SBU) Separately, Tymoshenko's state recapitalization committee 
(which includes representatives from the IMF and World Bank) 
injected domestic treasury bonds worth 3.5 billion hryvnia ($440 
million) into a third financial institution in late July, Kyiv Bank. 
 Nonetheless, Kyiv Bank was still struggling, according to the 
Ministry, causing the NBU to extend the term of the bank's temporary 
administrator.  Ministry officials said that Kyiv Bank still needed 
to "completely rework" its structure and management. 
 
5.  (SBU) Turning to developments at Nadra, Ukraine's second largest 
domestic bank, Finance Ministry officials said that an extension of 
the temporary administration period will allow for outstanding 
restructuring talks to continue.  Ministry officials hinted that a 
recapitalization program for Nadra had been studied within the GOU, 
but the state recapitalization committee would not debate a plan 
until Nadra's creditors came to terms with the bank.  While praising 
Nadra's temporary administrator Valentina Zhukovska for her 
management acuity, Ministry officials said PM Tymoshenko had 
informally appointed well-known banker Igor Franzkevich to oversee 
Nadra's outstanding debt restructuring.  Franzkevich is considered a 
likely candidate to become Nadra's CEO in the event of GOU 
recapitalization. 
 
6.  (SBU) Finally, Ministry officials revealed that Ukrprombank will 
be liquidated soon, despite public calls from former NBU director of 
liquidation and current temporary administrator Konstantin Rayevskiy 
to recapitalize it.  Ministry contacts unequivocally stated that 
Ukrprombank is a "dead bank, with no chance to survive."  The NBU 
has proposed transferring Ukrprombank's assets to the state-owned 
Oshchadbank, with the difference between Ukrprombank's assets and 
liabilities covered by Ministry of Finance treasury bills.  A 
decision on the bank's fate may be passed by the state 
recapitalization board and the Cabinet of Ministers as early as next 
week. 
 
7.  (SBU) Comment.  Consistent with statements from the Ministry of 
Finance, IMF officials confirmed to us on August 12 that the NBU and 
GOU are now exercising broader authorities, following the passage of 
an IMF-supported law on Ukraine's financial sector that became 
effective August 5.  This new law, which the IMF believes provides a 
"deeper and richer toolkit" for bank restructuring, should 
ultimately prove a boon for Ukraine's taxpayers.  It allows for 
banks such as Ukrprombank to be liquidated, keeping intact resources 
to meet other financial sector needs. 
 
PETTIT

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