The mechanism for creating a rehabilitation institution has been approved

The Central Bank has developed a mechanism for reorganizing Rodovid Bank into a resolution institution that will work with UAH 20 billion of problem loans from state and nationalized banks. Bankers doubt that the state will be able to allocate budget funds for the purchase of problem portfolios, but are ready to give them to Rodovid Bank with the condition of deferred payment. Collectors are confident that the resolution bank will not be able to handle “toxic” assets on its own, and the institution will have to turn to them for help.

After the government decided to create a resolution institution based on Rodovid Bank in September, the regulator took more than three months to prepare regulations for its activities. Yesterday, NBU resolution N471 was published, which allowed Rodovid Bank to work with its problem assets, as well as with the assets of state-owned Oschadbank and Ukreximbank and nationalized Ukrgasbank and Bank Kyiv. He will be able to buy or receive them for further restructuring and collection. The lifespan of the reorganization institution will be determined by the charter, and it can be liquidated at the initiative of the owner or the National Bank, as well as in the event of sale to an investor. The resolution bank is exempt from complying with NBU regulations, but will operate under a limited license. The resolution bank will not be able to attract deposits, although it will be able to carry out a number of market functions: collect funds and transport currency valuables; rent out individual safes; trade government bonds, certificates of deposit, currency; carry out currency exchange transactions.

Five institutions that will form a pool of problem loans will be able to provide the resolution bank with work for a long time. At the beginning of the year, on the balance sheet of state-owned banks there were 10.4 billion UAH of bad loans (overdue over 90 days), nationalized - another 10 billion UAH, including bad loans of Rodovid himself amounted to 3.3 billion UAH.

Bankers are ready to transfer non-performing loans to Rodovid Bank. “The amount of debts that have not been serviced for more than 90 days, including interest and fines, now amounts to 6 billion UAH. Every month, through our efforts, we return 30 million UAH of “real” money,” says Deputy Chairman of the Board of Ukrgasbank Stanislav Shlapak. “I doubt that Rodovid Bank will start buying problem assets because they won’t give it the money for it.” Therefore, it is necessary to find a mechanism for dealing with debts. “Most likely, the portfolios will be transferred on a free basis. Rodovid will manage them, and then give money to the banks through the return of debts,” suggests Mr. Shlapak. “Perhaps the banks will pay Rodovid a fixed monthly commission, but it should be less than the amount which we spend on repaying our debts ourselves."

Collectors note that the reorganization of a problem bank into a resolution bank will require serious investments. “In fact, Rodovid will need to be turned into a collector; this will require significant investments: $1-2 million is needed for software to process a large array of debts, another $0.5 million per month is needed for the training and maintenance of specialists. Most likely, the bank will already attract organizations operating in the market,” says Sergei Deminsky, general director of the collection company CredEx. At the same time, market participants are perplexed why banks cannot sell their assets to factoring companies or outsource debts to collectors. “It is not clear why collectors cannot work with the problem debts of these banks. It would be logical if a resolution bank was created to work with the problem assets of the entire market, and not five institutions. In this case, suspicions arise of possible corruption or potential raider attacks “, says Alexander Ilchuk, Director General of the European Debt Recovery Agency. “Most likely, Rodovid will start working with collectors and will be an intermediary. He is physically not ready to handle such large volumes of “toxic” assets.”

Market participants warn of difficulties in repaying old debts. “If a bank buys debts at par or even for 50% of par, then the operations will undoubtedly be unprofitable for it. The adequate price for debts now is 15%,” notes Sergei Deminsky. “We must take into account that ensuring the return of debts that are more two years, it is very difficult, since the value of real estate has decreased during this time, and the dollar has increased. There is a practice in the market of installments, when payment for a portfolio is transferred in 3-4 tranches, but this is a fixed amount that does not depend on the efficiency of debt repayment."

It is curious that even the experts of the National Bank have doubts about the effectiveness of the work of the reorganization institution. Employees of the NBU Center for Scientific Research in a monograph dedicated to the resolution bank note that its creation creates a serious burden on the state budget and taxpayers. They also believe that the creation of a resolution bank is advisable only in the event of the bankruptcy of a large bank and the presence of systemic risk, and the resolution institution should exist for no more than three years.

Elena Gubar

Newspaper "Kommersant Ukraine" No. 13 dated 02/01/2012, p. 6

Authors:

Elena Gubar

Themes:

Banking system

Toxins are being drained into Rodovid Bank