Ukraine's central bank starts process of nationalizing Sense Bank

MOSCOW. July 21 (Interfax) - The board of the National Bank of Ukraine (NBU) has decided to remove the systemically important Sense Bank (formerly Alfa Bank) from the market and has made a proposal to the government regarding the state's participation in this process, Ukrainian media reported, citing the NBU's website.

Citing Sense Bank, the report said that the bank's direct owners are ABH Ukraine Limited (Cyprus) and ABH Holdings S.A. (Luxembourg), while the beneficiaries are Mikhail Fridman, Petr Aven and Andrei Kosogov, who are subject to Ukrainian sanctions, among others. Independent auditor RSM Ukraine LLC said in a report for 2022 that the beneficiaries' ties to Russia constitute a significant reputational risk for the bank and have a negative impact on its business.

The NBU recalled that sanctions against Fridman, Aven and Kosogov in the form of a freeze on assets were imposed in Ukraine in October 2022, while sanctions against ABH Ukraine Limited and ABH Holdings S.A. (ABHH) have been in effect since July 5, 2023.

However, the NBU said that in 2023 it received from ABHH a notice of intention to transfer control over Sense Bank to Karswell Limited (Cyprus). Such a deal, if allowed to go forward, would contradict sanctions, the NBU said.

"The qualifying holders of Sense Bank JSC are unable to meet their commitments, as defined by the Law of Ukraine On Banks and Banking, specifically to maintain, on a permanent basis, a level of capital sufficient to comply with the regulatory ratios established by the NBU, and to take timely measures to prevent the Bank's insolvency," the NBU said.

Taking into account martial law in Ukraine and the current financial standing of Sense Bank, "all of the above poses a threat to the interests of depositors and other creditors of the Bank," the NBU said.

"Under such conditions, in accordance with the Law of Ukraine On Banks and Banking, the NBU must make a decision to resolve Sense Bank JSC, a systemically important bank," the NBU said. The NBU declared Sense Bank to be systemically important on March 8, 2023.

Pursuant to the NBU's decision, the Deposit Guarantee Fund (DGF) has decided to install a provisional administration at Sense Bank effective July 21.

DGF data showed that potential compensation for the deposits of individuals, including entrepreneurs, totalled UAH44.323 billion as of July 1.

ABHH said earlier that it would take all measures to legally protect its interests if Ukraine moves to nationalize Sense Bank. Specifically, the company said it would seek protection under the Belgium-Luxembourg-Ukraine agreement on protection of investment if the country refuses to voluntarily compensate it for lost investments.

If Sense Bank is nationalized, the losses for ABHH will be significant, so ABHH will take the appropriate measures in terms of both national and international law and existing agreements in order to reimburse them, the company said.

ABHH's principal shareholders are Fridman with 32.8632%, Aven with 12.4018% and Kosogov with 40.9614%.

ABHH also said earlier that it had reached an agreement with an international investor to sell 75.6% of Sense Bank for $1, and that it believed the best outcome would be to leave the bank in private hands. ABHH recalled that in the fall of 2022 shareholders sent the NBU a letter in which they expressed a willingness to hand over the bank to the state free of charge and voluntarily if such a decision was made by regulators, but since no response was received to this letter, ABHH continued to look for an investor.

The NBU said in its statements that it could not approve a deal to sell the bank.

Sense Bank, with UAH97.19 billion in assets, was the tenth largest of the 65 banks operating in Ukraine as of the beginning of May. Its charter capital totaled UAH28.726 billion and equity amounted to UAH7.49 billion.

Ukraine's parliament passed a bill at the end of May that allows the nationalization of Sense Bank as a systemically important bank on the grounds that it has persons subject to sanctions among its principal shareholders. President Vladimir Zelensky signed the bill into law in mid-June.

The official exchange rate was UAH36.57/$1 on July 20.