Last Updated October 17, 2008
Ukraine is feeling the full effects of the global credit crisis, with its currency in freefall against the dollar and a number of banks being bailed out by the state. However, the National Bank of Ukraine has rapidly been introducing new legislation to stablise the situation, and despite the financial chaos, certain banks have managed to close deals.
The deteriorating financial situation did however prompt the International Monetary Fund (IMF) to potentially lend between US$3bn and US$14bn to the country to stabilise its economy. Prime minister of Ukraine Yulia Tymoshenko announced IMF’s decision to a press conference on Thursday October 17.
Ukraine’s economic downturn is ill-timed, coming just after President Viktor Yushchenko dissolved the government in September, calling for new parliamentary elections in December 7.
While announcing the IMF’s position, Tymoshenko made a clear reference to her disapproval of the call for early elections.
“The IMF is ready to consider from US$3bn to US$14bn of special credits to stabilise the financial system of Ukraine but it will be very difficult to negotiate with Ukraine until all these proposals on early election are heard,” she explained.
She advises that in order to get the credits urgently needed to stabilise the country’s financial system: “we should postpone the election, it was also said by the IMF in its reports.”
The division between the president and Tymoshenko is well-known and long-standing. Yushchenko has accused the prime minister of destroying the government with her “thirst for power”. The rift has developed despite the two being allies in the 2004 Orange Revolution.
Ukraine’s economic downturn is ill-timed, coming just after President Viktor Yushchenko dissolved the government in September, calling for new parliamentary elections in December 7.
While announcing the IMF’s position, Tymoshenko made a clear reference to her disapproval of the call for early elections.
“The IMF is ready to consider from US$3bn to US$14bn of special credits to stabilise the financial system of Ukraine but it will be very difficult to negotiate with Ukraine until all these proposals on early election are heard,” she explained.
She advises that in order to get the credits urgently needed to stabilise the country’s financial system: “we should postpone the election, it was also said by the IMF in its reports.”
The division between the president and Tymoshenko is well-known and long-standing. Yushchenko has accused the prime minister of destroying the government with her “thirst for power”. The rift has developed despite the two being allies in the 2004 Orange Revolution.
Crisis hits banking sector
Against a backdrop of political crisis, Ukraine’s economy has begun a downward descent.
Against a backdrop of political crisis, Ukraine’s economy has begun a downward descent.
Since the beginning of October, the Ukrainian banking sector has seen two banks run into severe difficulties with the central bank taking over the management of Prominvestbank in early October, after it was forced into bankruptcy by a bank run. It is still being disputed whether there was an actual run on deposits or if the situation evolved out of a shareholder dispute.
Whatever the roots of the run, the takeover helped push up credit default spreads on Ukraine debt by 523 basis points to 1,750bp. Those in the market are increasingly concerned the country could default on its debt.
Political risk and trade insurers are also monitoring the situation carefully. Credit insurer Atradius (Dutch state business) has told GTR it has just gone off cover on the banking sector in the Ukraine for all new transactions.
Nadra Bank has also received a US$300mn loan from the central bank, and a number of other financial institutions have looked to the government for additional injections of liquidity. The bank secured the financing to help pay off a syndicated loan, causing concern amongst analysts about the banking sector’s ability to repay or refinance debts, particularly as the Ukrainian hyyvnia is rapidly falling against the dollar.
Whatever the roots of the run, the takeover helped push up credit default spreads on Ukraine debt by 523 basis points to 1,750bp. Those in the market are increasingly concerned the country could default on its debt.
Political risk and trade insurers are also monitoring the situation carefully. Credit insurer Atradius (Dutch state business) has told GTR it has just gone off cover on the banking sector in the Ukraine for all new transactions.
Nadra Bank has also received a US$300mn loan from the central bank, and a number of other financial institutions have looked to the government for additional injections of liquidity. The bank secured the financing to help pay off a syndicated loan, causing concern amongst analysts about the banking sector’s ability to repay or refinance debts, particularly as the Ukrainian hyyvnia is rapidly falling against the dollar.
Quick action required
Commenting on the faltering market, an Ukrainian analyst remarks to GTR: “The severity of the world economic crisis on Ukraine and its consequences are hard to assess but the financial sector is the Achilles tendon that could bring the country down through a systemic collapse.”
However, he adds that: “Despite the debilitating political rivalry between the president and the prime minister resulting in the recent dissolution of the parliament, the National Bank acted promptly.
“In the wake of its American and European peers it pumped money into the banking sector to thwart liquidity and solvency problems and by tripled its guarantee on deposits.”
However, he adds that: “Despite the debilitating political rivalry between the president and the prime minister resulting in the recent dissolution of the parliament, the National Bank acted promptly.
“In the wake of its American and European peers it pumped money into the banking sector to thwart liquidity and solvency problems and by tripled its guarantee on deposits.”
Another Ukraine-based banker remarks to GTR: “The National Bank of Ukraine has been historically proactive in taking steps to avoid panic or runs in banks, such as during the Orange Revolution on 2004, and has taken certain measures in the last week, to stabilise the system.”
These measures include the imposing of restrictions on early withdrawal of deposits from commercial banks, as well as restricted lending operations of commercial banks.
The central bank has also asked that commercial banks must ensure uninterrupted operation of all ATMs and make sure there is enough cash to ensure prompt payment of wages, pensions, social benefits, as well as to dispense cash on payment cards issued by other banks.
All these resolutions, among others, came into effect on October 13, and have been taken to ensure stable banking system and protect the interests of depositors and other creditors. Following this, there was an additional amendment allowing the central Bank to provide loans to companies, namely exporters, in order to support the national economy.
Combined with the proposed IMF package, it is hoped these measures might restore a relative degree of calmness to the market. However, others are more sceptical.
Combined with the proposed IMF package, it is hoped these measures might restore a relative degree of calmness to the market. However, others are more sceptical.
“Will it all be enough to restore trust when Ukrainians have been burnt before,” asks one market analyst.
“That is not so sure. The ripple effect of falling steel and agricultural prices coupled with the Hryvnia free-fall has not ended yet and the IMF is predicting a GDP growth of 2.5% in 2009 versus 6.4% in 2008,” he contends.
One Ukrainian success story of the week is the closing of a trade-related dual tranche term facility for Alfa Bank Ukraine.
It launched a US$60mn syndicated facility in August, and finally managed to get the deal signed on October 14. However, during syndication it was divided into a US dollar tranche of US$23.5mn and a euro tranche of €26.935mn. Yet, it was still closed fully subscribed. It pays a margin of 200bp, and has a tenor of 364 days (with an optional 364-day extension). Mandated lead arrangers on the deal were Banif Bank, BayernLB, GarantiBank and HSBC.
A source working close to the deal remarks to GTR: “Of course, given the current market situation, the appetite is not that strong as in 2007, but still exists. The deal was really a great effort of the bank and provides evidence for trust and confidence on behalf of foreign investors towards Alfa.”
Alfa Bank is unlikely to look for any new loan syndications before the end of the year, pending an improvement in the regional and global economic situation.
Alfa Bank is unlikely to look for any new loan syndications before the end of the year, pending an improvement in the regional and global economic situation.
Alfa Bank Ukraine is well-positioned to survive the tumultuous markets, with the bank running positive liquidity mismatch. It has received US$150mn of capital funds from its shareholders to be registered with National Bank of Ukraine within the next few months. Also, there are no big repayments planned by the end of the year.
Alfa Bank Ukraine has also benefited from additional legislation recently introduced by the National Bank of Ukraine, with rules that have expanded the types of collateral that can be accepted when banks look to refinance old debts. For instance, the central bank has just approved an Hrn440mn mid-term financing being raised by Alfa Bank to finance a state-owned company.
Alfa Bank Ukraine has also benefited from additional legislation recently introduced by the National Bank of Ukraine, with rules that have expanded the types of collateral that can be accepted when banks look to refinance old debts. For instance, the central bank has just approved an Hrn440mn mid-term financing being raised by Alfa Bank to finance a state-owned company.
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