The Rise and Fall of PrivatBank in Ukraine

PrivatBank was once the largest bank in Ukraine, but its rise to the top was followed by a dramatic fall.

Founded in 1992, PrivatBank quickly gained popularity due to its aggressive expansion strategy and innovative use of technology.

PrivatBank's success was largely due to the bank's founder, Ihor Kolomoyskyi, who was known for his shrewd business tactics and ability to attract customers.

However, the bank's rapid growth and aggressive lending practices led to concerns about its financial stability.

PrivatBank's assets grew from $1.6 billion in 2006 to $20 billion in 2016, but the bank's debt-to-equity ratio also increased significantly during this period.

Additional reading: Nationalization of PrivatBank

PrivatBank has come a long way since its inception, and its financial performance is a testament to its growth and resilience.

In 2021, PrivatBank earned a profit of ₴35.050 billion, according to the National Bank of Ukraine's official data.

The bank's equity, assets, and net profit have shown a steady increase over the years.

Here's a breakdown of the bank's financial performance over the past 15 years:

The Management Board of PrivatBank is the collegial executive body responsible for managing the bank's activities.

The Chairperson and Members of the Bank Management Board are appointed by the Supervisory Board for a period not exceeding 5 years.

The Management Board has 12 established committees, each responsible for a specific area of the bank's operations. These committees include the Credit Committee, Compliance and Financial Security Committee, and Transformation Committee, among others.

Here are the 12 Management Board Committees operating in the Bank:

The activities of the Bank Management Board are governed by Mikael Björknert, Chief Executive Officer of PrivatBank.

PrivatBank has been involved in several controversies and issues over the years. One of the most notable is the bank's alleged ties to organized crime, which has led to concerns about money laundering and corruption.

The bank's former owner, Ihor Kolomoyskyi, was accused of embezzling billions of dollars from the bank, which has caused significant financial losses for the bank and its depositors.

Nationalisation was a significant event in the history of PrivatBank. On 18 December 2016, the Deposit Guarantee Fund appointed a temporary administrator to manage the Bank's activities.

The National Bank of Ukraine had classified the Bank as insolvent, leading to this decision. The Deposit Guarantee Fund took control of the Bank's management and supervisory board for three days, from 19-21 December 2016.

During this period, the Fund recognized the impairment of loans and advances to customers worth UAH 155,764 million. It also converted UAH 10,934 million of customer funds, UAH 10,721 million of issued Eurobonds, and UAH 7,783 million of subordinated debt into the Bank's authorized capital.

This process is known as "bail in". The Bank's shares were sold to the Ministry of Finance of Ukraine for UAH 1 on 21 December 2016.

The Ministry of Finance later increased the Bank's authorized capital by UAH 116,800 million in December 2016 and by UAH 38,565 million in June 2017. As a result, the Ukrainian state now owns 100% of the Bank's shares.

Consider reading: Banks in Ukraine

PrivatBank had a capital shortfall of about $5.65 billion, which was a major concern for the Ukrainian financial system.

The bank's capital shortages were caused by its own imprudent lending policy, not just by crisis-related factors. This means that the bank was lending money to companies without being careful about their creditworthiness.

About 97% of PrivatBank's corporate loans went to companies linked to its shareholders, which is a clear sign of a flawed lending strategy.

This kind of lending can lead to a situation where the bank is not able to recover its loans, resulting in a significant loss of capital.

PrivatBank serves almost 19 million Ukrainians, with 15 million using its digital banking services through Privat24. This digital banking system has been in use since 2001 and has been widely adopted by the Ukrainian population.

A significant portion of PrivatBank's customers come from the trade and commercial sectors, with a large share of corporate customers in the food, transport, agricultural, and construction industries.

The bank's customer base is diverse, with a large number of individuals and businesses relying on its services. This is likely due to the bank's widespread presence and innovative approach to banking.

PrivatBank has been at the forefront of digital banking in Ukraine, introducing SMS-banking in 1999 and dynamic one-time OTP passwords in 2000. The bank's commitment to innovation has allowed it to stay ahead of the curve and provide its customers with cutting-edge banking solutions.

Here are some key statistics on PrivatBank's customer base:

PrivatBank serves a massive customer base, with almost 19 million Ukrainians relying on its services regularly.

The bank's digital banking platform, Privat24, has an impressive 15 million customers.

A significant portion of the bank's corporate customers come from the food industry, which is no surprise given the country's rich agricultural heritage.

The transport industry is also well-represented among PrivatBank's corporate customers, likely due to the country's extensive transportation network.

Enterprises in the agricultural and construction industries are also major players in the bank's customer base.

These diverse industries are a testament to the bank's ability to serve a wide range of customers and meet their unique needs.

In 1999, PrivatBank launched SMS-banking, allowing customers to manage their accounts through text messages.

This was a game-changer, making banking more accessible and convenient for people on-the-go.

In 2000, the Bank introduced dynamic one-time OTP passwords, linking cards to mobile phone numbers for added security.

This innovation set the stage for future advancements in mobile banking.

The Privat24 digital banking system was launched in 2001, and as of June 2022, more than 15 million people use it.

This platform has revolutionized the way people bank, offering a range of services and features at their fingertips.

In 2005, PrivatBank emitted its millionth credit plastic card, marking a significant milestone in the Bank's history.

This achievement demonstrates the Bank's commitment to expanding its services and meeting the growing demands of its customers.

Here are some notable innovations introduced by PrivatBank: