VAB Bank offers financial recovery plan

Обзоры по компаниям и отраслям 08.10.2014 Ukraine’s 15th biggest lender by assets, VAB Bank (VABANK), has developed an action plan to improve its financial situation, according to an Oct. 7 address of its CEO to the bank’s clients. At the core of the plan is the bank’s recapitalization “by international investors with the obligatory participation of the central bank.” This will ensure that the bank will implement all its obligations under full control of the central bank. The bank’s current biggest “international investor” is Cyprian Quickcom Limited (90% stake, we estimate), controlled by Ukrainian businessman Oleg Bakhmatyuk. VAB Bank has stressed that it is experiencing hard times, like all of Ukraine’s banking system. In particular, its customers are having trouble repaying their foreign currency loans (accounting for 29% of gross loans, as of the year start). On top of that, VAB Bank reportedly has lost more than UAH 2 bln in residential deposits since the year’s start (about 20% of year-start deposits). Alexander Paraschiy: The bank’s statement clearly hints that Bakhmatyuk is intending to give operational control over the institution to the central bank. For Bakhmatyuk, the bank is not only an inefficient investment, but also an asset that has contributed the most to his spoiled reputation. Therefore, his attempt to make the central bank share responsibility for VAB meeting future obligations looks natural. The core question right now is whether the NBU will agree on the action plan. Despite the bank’s size, among the top 15 based on end-1H14 results (allowing it to enter the tier 1 group of banks), VAB Bank was ranked 16th by the NBU (still in the second tier). This might be an indicator of the bank’s small “systemic importance” on the Ukrainian market, in the central bank’s view. If so, the NBU’s participation in the bank’s action plan does not look secured. The information on VAB deposit outflows looks disturbing, suggesting a huge drop in residential deposits in 3Q14 – about UAH 1 bln, which is comparable to the outflow of the previous two quarters. Based on the latest available reports, it lost about UAH 1.1 bln of its year-start residential deposits during 1H14, including UAH 0.66 bln of its UAH-nominated liabilities (-9% ytd), and the equivalent of USD 47 mln (UAH 0.48 bln, or -11% ytd) of its foreign currency deposits.