On 29 May, the Verkhovna Rada adopted in the second reading the draft law №9107-1 on the mechanism for withdrawing banks from the market, whose owners are subject to sanctions. Essentially, the sole financial institution targeted by this document is Sense Bank (formerly known as Alfa-Bank).
Although there is no direct mention of this bank, the text of the draft law contains clarifications that specifically refer to Sense Bank. In particular, the National Bank of Ukraine (NBU) is now empowered to nationalise systemically important banks whose owners are subject to sanctions. Furthermore, such a bank may remain solvent as before. In other words, its withdrawal from the market occurs solely due to issues related to its shareholders, not the bank itself.
Mind has analysed the procedure envisaged for the nationalisation of the bank and when this may occur.
What was the first law regarding the withdrawal of Sense Bank from the market? The adopted bill № 9107-1 is already the second legislative act that provides for a special procedure for withdrawing systemically important banks from the market.
In the autumn of 2022, the parliament passed the law № 2643-IX, which outlined the mechanism for the nationalisation of systemically important banks in times of war. In short:
When this law was adopted, representatives of the Servant of the People party (including MP Roksolana Pidlasa) announced that it was specifically designed for the nationalisation of Sense Bank. According to Pidlasa, based on the provisions of the law № 2643-IX, the National Bank formally recognizes the bank as insolvent, after which its nationalisation will take place.
Why wasn't Sense Bank transferred to the state? Despite the fact that the parliament laid the foundation for a justified withdrawal of the bank from the market, its nationalisation did not occur.
According to one version, the key shareholders, Mikhail Fridman and Pyotr Aven, who owned 45% of the shares before the war, made efforts to negotiate with the Ukrainian government to keep the bank in the market. The most prominent public move by Fridman was an open letter to the Governor of the National Bank of Ukraine, Andriy Pyshny, in which he promised to support the stability and viability of the bank, and when the Cabinet of Ministers and the NBU decided that Sense Bank should be transferred to the state, Fridman stated his readiness to do so for free. He also planned to recapitalize the bank with $1 billion and allocate a portion of this amount to finance the Ukrainian economy and its post-war recovery.
The second, more prosaic reason is that the National Bank did not have grounds to change the owners of Sense Bank. The bank's liquidity was more or less fine, and even regulatory norms (including the adequacy of regulatory capital H2 and the adequacy of core capital H3) were still being met.
Since the participation of residents of the aggressor country in the bank's capital (Fridman and Aven hold russian citizenship) and the shareholders being under sanctions are not grounds for nationalisation according to law №2643-IX, the hands of the NBU were tied.
In addition, in April 2022, the russian owners of the bank, so to speak, stepped back. They transferred the functions of the key owner to Simeon Dyankov, a former Finance Minister and Deputy Prime Minister of Bulgaria, and the Chairman of the Financial Risks Group at the London School of Economics. Therefore, formally, the shareholders ceased to have an influence on the bank's operations.
What's new in the second bill on the nationalisation of Sense Bank? Danylo Hetmantsev, the Chairman of the Parliamentary Committee on Finance, Taxation, and Customs Policy, explained that the adopted bill № 9701-1 includes a procedure for withdrawing banks owned by sanctioned individuals from the market, which aims to protect the interests of bank clients and depositors.
The main changes outlined in the document are as follows: the National Bank, under certain circumstances related to the application of sanctions to the bank and/or its owners, has the right to make decisions:
The withdrawal of the bank will follow the same procedure established by law № 2643-IX: transfer to the state for 1 hryvnia, no recapitalisation, and so on. Additionally, the procedure will be expedited as much as possible. For example, if a systemically important bank is withdrawn from the market without insolvency, the Cabinet of Ministers does not need confirmation from the Financial Stability Council that there are signs of instability and other circumstances that threaten the financial sector.
It is also important to note that individuals who suffer losses as a result of the liquidation or withdrawal from the market of a systemically important bank will only be able to seek compensation from the aggressor state through lawsuits, which can take years or even decades.
Why has the nationalisation of Sense Bank become a reality now? The fact that bill No. 9701-1 will be signed by the president and come into effect leaves no doubts. The MPs pushed it through persistently, and the bill even had to be brought up for a second reading. As we can see, it was successful.
By the way, 305 members of parliament voted in favour of it. That's even more than for bill No. 2643-IX. Moreover, the repeated statements by representatives of the Presidential Office and the Cabinet that any business associated with russia should be eliminated from the Ukrainian economy can now be implemented. After all, Sense Bank is truly the only player in the banking market with russian roots. Prominvestbank and sberbank (International reserve bank jsc), which had owners from the russian federation, have long been liquidated.
According to the provisions of bill No. 9701-1, the National Bank of Ukraine (NBU) will be able to remove Sense Bank from the market, based solely on the presence of sanctions against its shareholders. According to the NBU, as of March 20, 2023, the key owners of the bank were: Andrey Kosogov (40.96% of shares), Mikhail Fridman (32.86% of shares), and Petr Aven (12.4% of shares). All of them hold russian citizenship. And a comprehensive set of sanctions was imposed against all of them.
According to the National Agency for Corruption Prevention:
Therefore, the NBU (National Bank of Ukraine) practically has no obstacles left to carry out the nationalisation. According to several participants in the financial market surveyed by Mind, this could happen within a month or two.
This is, in fact, the time required to fulfil formalities, including obtaining approval from the International Monetary Fund (IMF). The thing is that in the memorandum with the IMF, Ukraine committed to consult with IMF experts before making any decisions that could potentially increase the state's ownership share in the banking sector.
Furthermore, the NBU is currently conducting stress testing for all systemically important banks. It is quite possible that the NBU will have additional information about the financial condition of Sense Bank.
Although, it should be reiterated that at this moment the bank is solvent. However, it is evident that the war, reputational losses, and the uncertainties associated with its nationalisation have not benefited the bank. According to the NBU, from February 1, 2022, to April 1, 2023, Sense Bank's net assets decreased by 35%, equity capital by 46%, individual customers' funds by 13.5%, and the loan portfolio by 37.2%.
When preparing this material, Mind reached out to the bank requesting comments on the adopted bill No. 9701-1 and statements regarding the future nationalisation. The bank's press service only stated that the bank representatives "…currently do not have a public position." If such a position is formed in the near future, we will publish it.