Fixed Income Snapshot - Three banks proposed for recap, Nadra on hold for now

BANKING: Central bank made the first firm recapitalization offer yesterday, proposing three banks to receive government aid – Ukrgazbank (17th by assets as of Apr 1, 09), Rodovid Bank (20th) and Kiev (40th). According to NBU official, named banks might need up to UAH9 bn. Government is expected to make final decision following meeting of special advisory committee on recap on Saturday, which gathers representatives of central bank, government, and IFIs.

Initially, seven banks were forced to seek government bailout, with two of them (Finance and Credit, Imex) dropping out of the list for now due to intention of government to take no less than 60%+1 stock when providing new capital. Government participation in other two banks is questioned. Temporary administration at Nadra (10th) leads talks with investors, demanding restructuring of nearly $1 bn in external debt before stepping in. Another bank, Ukrprom (18th), has been under receivership since Jan 09, but is reported to experience extensive problems with asset quality.

Should the government approve central bank’s offer, it might take at least two-three months to go through the process, given that recapitalization procedure is poorly specificated in legal documents. Central bank will have to adjust banks’ capitals and probably place Ukrgaz under receivership (Rodovid and Kiev are already there).

Our view: total assets of three recapitalized banks stand at UAH28.7 bn, with only 25% of assets denominated in foreign currencies. It implies that impairment of their balance sheets due to UAH depreciation should be lower than average across the system. Given that capital injection is very generous and constitutes one third of assets, these banks would be in a very good shape after recap.

MM&FX: USDUAH is weakening towards 7.70 levels, reflecting unlocking UAH lending. Several major banks were reported to come up with cheap UAH resource for corporates that presumably decreased USD offer from exporters. Liquidity is still very high at UAH19.3 bn.