KIEV: Ukraine’s crisis-stricken banking system is set to receive a boost from the European Bank for Reconstruction and Development, which has announced plans to invest in the Ukrainian unit of Austria’s Raiffeisen Bank International.
The EBRD on Monday said it was in talks to buy a significant minority stake in Raiffeisen Bank Aval, Ukraine’s second-biggest western-owned lender, that “will send a strong positive signal to the market during the period of severe political and economic crisis”.
Ukraine’s banking system has been hit by large outflows of deposits, a sharp contraction in the economy and severe depreciation in its currency, the hryvnia. Aval made a loss of €82m in the first quarter.
Raiffeisen tried to sell Aval last year but was forced to abandon the auction after Russia’s annexation of part of Ukraine and the continued political stand-off between the former Soviet republic and Moscow.
Anton Usov, senior adviser at EBRD, said the potential investment in Aval was designed to support the Ukrainian economy by helping to provide more small business loans and financing for energy efficient projects.
“Small business lending has been practically impossible in this country for almost four to five years and that is obviously tragic,” he said.
The deal with Aval would involve it issuing new equity that would be bought by the EBRD to inject funds into the bank and give it a 20-25 per cent stake. It is expected to be completed by September.
Aval has closed more than 100 branches in the past year, mostly in the war-torn east of Ukraine, and it had 671 outlets left in the country at the end of last year.
Mr Usov said the Ukrainian government recently proposed a law to convert foreign currency loans into hryvnia, which he said could trigger billions of euros of losses for the banks.
Fitch said last month that aggregate capital adequacy ratios had almost halved in Ukraine to well below the 10 per cent minimum required level, while adding that regulators were waiving the rules for now.
“Prospects for solvency recovery without injections of new capital appear limited in the short and medium term because banks are unable build up capital through retained earnings,” said Fitch.
In the past 18 months, the Ukrainian central bank has declared a quarter of the country’s 180 banks insolvent, liquidated 37 of them and earmarked 36bn hryvnia for bailouts of struggling lenders.
The EBRD uses funds from its 66 member countries and organisations to finance banks and businesses mostly in central and eastern Europe.
It has invested in many banks across the region, as well as in Turkey and north Africa. It recently opened an office in Athens, but is yet to make any significant investments in Greek banks or businesses.
Ukrainian banks received almost €1bn from the EBRD when the country was hit by a sovereign debt crisis in 2009 and Aval has been receiving funding from the organisation since the mid-1990s.
