Memorandum Address regarding the settlement of debt owed by the commercial banks VAB Bank and Financial Initiative removed from the market during 2014-2015

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15 April 2020


Cabinet of Ministers of Ukraine,

State Deposit Guarantee Fund of Ukraine,

National Bank of Ukraine,

Office of the Prosecutor General of Ukraine 



Memorandum Address 
regarding the settlement of debt owed by the commercial banks VAB Bank and Financial Initiative removed from the market during 2014-2015


This memorandum seeks to establish a positive precedent in the resolution of banks removed from the market by the NBU during 2014-2015. 

During 2014–2015, the real economy of Ukraine was under enormous pressure from crisis developments aggravated by turmoil in the banking sector and FX market. The political crisis of early 2014, the unwinding of negative trends from previous years and the occupation of Crimea and individual parts of Donetsk and Lugansk regions triggered a deep economic crisis.  Decline in output during 2014 and 2015 was further aggravated by several waves of depreciation of the hryvnia and bank runs that drove 95 banks into bankruptcy. This dramatically affected the operations of companies that owned or were related to banks. 

The Deposit Guarantee Fund reimbursed some 2 million depositors of failed banks for guaranteed amounts exceeding UAH 90 bn in total, some of which had been borrowed from the Ministry of Finance of Ukraine and not repaid to date. Depositors of most banks did not collect more than the guaranteed amount. 

Sale of assets from insolvent banks and recovery of losses caused by parties related to the banks were identified as the chief sources of meeting the claims of creditors and of the state.  The average conversion rate of banking assets to cash, however, has been lower than 1% of outstanding amounts, while recovery of losses caused by related parties has been close to zero because such related parties have been able to challenge claims against them by asserting force-majeure circumstances in the form of hostilities and currency depreciation.   

I’m convinced that the chief object and sought outcome for the state should not be court proceedings aimed at recovering losses from borrowers, guarantors or related parties, rather a resolution should be sought that would deliver a maximum and  expeditious repayment of what is owed to bank creditors and the state, with those funds subsequently used to fuel economic growth and restore confidence in the banking industry.      

I’m convinced that the settlement of creditors’ claims of banks declared insolvent during 2014-2017, both liquidated and under liquidation by the Fund, should be pursued with due regard to all the objective facts and circumstances that played a role in driving those banks into insolvency.  

I do acknowledge the progress made by the Fund in achieving a settlement but… Cognisant of the limited toolkit of legal instruments and remedies available to the Fund and the National Bank to achieve an effective debt settlement, I suggest drawing on the best of international experience to broaden that toolkit. 

As the owner of banks removed from the market, I’m keenly aware of my responsibility and fully appreciative of the importance of filling the government coffers under these straitened circumstances.  I come forward with a proposal of voluntary settlement, one that would enable the government to collect UAH 8 billion while saving a company, which is a key player in Ukraine’s real economy.  

As the owner of a large company employing 27 thousand people and generating close to 1% of the national GDP, one that has contributed some UAH 7.7 billion in taxes over the past 3 years, I’m prepared to guarantee execution of this proposal and back it up with relevant financial calculations.  

I propose that the National Bank of Ukraine and the Deposit Guarantee Fund conduct a restructuring of the debts of VAB Bank and Financial Initiative Bank, which would enable the state to recover UAH 8 billion over the next 5 years. 

Such a civilised path toward voluntary resolution taken by a Ukrainian bank could provide the first successful example of achieving a positive financial outcome, which, as we know from experience, is not achievable otherwise. 

This path has gained the support of international financial institutions, inter alia, the IMF and the World Bank.  

I ask you to support this proposal as one upholding the public interest.  

I propose the following: 

- resolve the bad debt through restructuring, yielding UAH 8 billion; 
- meet the first instalment of UAH 1 billion during 2020; 
- fully extinguish the debt over the next 5 years; 
- no deferral of principal repayments.


Oleg Bakhmatyuk