A transition bank that fails due to transition? - FDI bureaucracy

On Monday 20th July Kyivska Rus” Bank, insolvent since March 2015 must be liquidated - except that need not have been the case - and indeed may at the 11th hour prove not to be the case, although the clock is almost entirely run down.

It need not be the case, as since April 2015, a large private UK investor with a global investment portfolio and exposure in the Ukrainian market since 2007, has sought to purchase a transition bank - that bank being Kyivska Rus” Bank.  The transition bank was to, and perhaps may yet, invest in agriculture, construction and energy businesses in Ukraine.

Aside from saving the nation UAH 2 billion in losses - the State would otherwise have to pay about UAH 1 billion by way of depositor guarantees and assume the loss of a UAH 450 refinancing loan provided - those liabilities which would be assumed by the new owners.  The UK investors will also put $100 million into the bank activities, and thus into the aforementioned Ukrainian markets that it has identified as of interest.

That matters have reached 48 hours before liquidation of  Kyivska Rus” Bank , and the issue has still not been settled despite interest in the purchase 4 months ago, is simply due to the usual unhelpful Ukrainian bureaucracy.

To be specific, the NBU (necessarily) changed its rules after documents were submitted, and the Anti-monopoly which has a role in the process, saw its head replaced (perhaps less necessarily).

Thus new documents were required to meet new rules and a new anti-monopoly review conducted in line with new rules and under new leadership.

To aggravate matters further, the creation of transition banks - or not - seemingly lacks a certain amount of compatibility amongst Ukrainian statute, unsurprisingly given the calibre of those that create statute in Ukraine.

The Depositor Guarantee Fund requires an investor to have the NBU approval to purchase the bank before it is tuned into a transition bank.  At odds with this, the Law of Ukraine (On Banks and Banking Activity) requires this after the bank has been created.

Needless to say, that whilst this bureaucratic disaster is not going to turn away a UK private investor that has been in the Ukrainian market for 8 years, it is certainly going to delay the investment that was going to come via the transition bank - for if  Kyivska Rus” Bank is liquidated on 20th, the another suitable banking entity has to be identified with debts that the investor deems acceptable to assume.


It is difficult to see how the Ukrainian economy would not benefit from a few well funded international transition banks.

By Tuesday morning, we will know whether a combination of finding wiggle room in the text of the relevant statues, and a super-fast tracking of effort by the NBU and Anti-Monopoly Committee will have saved the investment day and sent the right message to the private FDI community - or not.

Can it be that a transition bank that is/was to have $100 million to invest into the Ukrainian economy, will fail to materialise due to a Ukrainian bureaucratic transition?

Something to watch for on Monday that probably won’t make the headlines.