February 22, 2017 / 4:34 PM / 5 months ago

Owners of Ukraine's Privatbank could face criminal probe after audit - central bank chief

KIEV, Feb 22 (Reuters) - The head of Ukraine's central bank said the former owners of recently nationalised Privatbank could face a criminal investigation if an IMF-mandated audit of its multi-billion dollar loans shows they knowingly bankrupted the lender.

Privatbank, Ukraine's largest lender, was taken under state control with the backing of the International Monetary Fund in December after risky lending practices left it with a capital shortfall of more than $5.5 billion.

At the time the central bank estimated that 97 percent of its corporate loans had gone to companies linked to its shareholders, who include powerful tycoon Ihor Kolomoisky, Ukraine's second-richest man.

Central bank Governor Valeriia Gontareva said the latest memorandum to the IMF for future financing under a $17.5 billion bailout laid out deadlines for an audit and restructuring of Privatbank's loan portfolio to allow the state to recoup its money.

"It has to be understood who the beneficial owners of these assets are and how they plan to return the loans," she said in an interview.

According to the IMF memorandum, auditors must verify if the companies that received loans from Privatbank are able to repay the money they owe over the next five to 10 years.

Gontareva said that if this is not possible, it will show that the corporate loans to parties related to the bank made it insolvent.

"This would be a matter for all our law enforcement bodies and the (central) bank would take the case to court," Gontareva said.

In 2015, Ukraine amended its banking legislation to make bankrupting a lender a criminal offence.

Privatbank's former owners are businessmen Gennadiy Bogolyubov and Kolomoisky - each worth $1.3 billion according to Forbes' 2016 ratings.

Kolomoisky's control of strategic industries, including his energy and media holdings, has put him at the centre of ongoing power battles among the political elite since street protests ousted a Moscow-backed president in 2014 and a pro-Russian rebellion erupted in the east.

After Privatbank was taken under state control, Kolomoisky rejected the central bank's assessment of the health of Privatbank's loan portfolio and accused the regulator of unfairly targeting the bank.

Gontareva said everything was being done to ensure maximum transparency: Ernst and Young have been hired to audit Privatbank independently, and a separate international firm will be contracted to manage the portfolio.

She said the central bank could take similar steps to tackle the large number of non-performing loans elsewhere in the banking sector.

The share of non-performing loans has risen to around 50 percent over the past few years due to an economic crisis linked to the separatist conflict in the industrial east of the country.

Gontareva said that Ukraine had fulfilled all of its obligations to receive the next, $1 billion tranche from the IMF soon and that despite delays the central bank's base scenario still foresaw the disbursement of a scheduled $5.4 billion this year. (Editing by Hugh Lawson)

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