Ukraine authorities took over PrivatBank in order to preserve financial stability in the country. Indeed, the problems faced by the bank, which have accumulated over the last few years, have recently deteriorated according to the central bank of Ukraine. These problems were mainly caused by imprudent lending policies such as related-party lending, which led to capital losses. Moreover, the recapitalisation programme was never implemented. Following the nationalisation of PrivatBank, the IMF stated that the nationalisation of the bank is an important step in the efforts to safeguard financial stability.
Impact on country risk
The nationalisation of PrivatBank, Ukraine’s biggest bank, was aimed at preserving financial stability. The cost of the rescue is likely to weigh on the budget that was approved by parliament in December. In this context, a new tranche of the IMF loan is likely to be approved in the forthcoming months. Despite economic recovery in 2016 following years of deep contraction, the commercial risk remains elevated not only due to relatively high real financial costs but also as access to credit remains very difficult (credit growth remains deeply negative). Despite capital controls, the exchange rate remains under pressure despite a small but growing current account deficit (-1.5% of GDP expected in 2016 and -2.1% in 2017). What is more, the business environment remains difficult partly due to the high level of corruption.
Analyst: Pascaline della Faille, email@example.com