December 19, 2016 / 11:45 AM / in 10 months

UPDATE 1-EBRD says could take stake in Ukraine's PrivatBank after clean-up

(Adds quotes, detail, background)

By Marc Jones

LONDON, Dec 19 (Reuters) - The European Bank For Reconstruction And Development could take a stake in Ukraine’s PrivatBank if the recapitalisation and clean-up of the lender goes well, a senior EBRD official said on Monday.

Ukraine declared its largest lender PrivatBank insolvent on Monday and said it was bringing it under state control in a rescue deal likely to cost at least $4.5 billion.

Frances Malige, the EBRD’s regional head who oversees Ukraine, told Reuters the move was a “giant step” for Kiev and that the EBRD could help by taking a stake once PrivatBank’s clean-up was under way, possibly as soon as next year.

“When the time comes, we are going to look at developing a relationship with the institution, meaning lending money or investing in equity,” Malige said.

“If we are lucky we can start looking at that in 2017. If it goes well we may, but if not it may be later.”

Under Western-backed banking reforms, Ukraine is meant to shut lenders that cannot meet capitalisation targets, but with nearly $6 billion in private deposits - 36.5 percent of Ukraine’s total - PrivatBank is considered too large to be allowed to go under.

Risky lending practices had left it with a capital shortfall of around $5.65 billion, while some 97 percent of its corporate loans had gone to companies linked to its shareholders, fanning worries about corruption.

“The key thing now is to take effective control of the institution, meaning establishing a new management team,” Malige said. “There are discussions (on new management). I have seen a few names and I am happy with the people I have seen.”

The EBRD has been Ukraine’s only major investor since the 2014 annexation of the Crimea region by Russia.

Last month it said it was prepared to buy a stake in another of the country’s banks, Oschadbank, provided changes were made, while last year it did a deal to take a 30 percent share in Raiffeisen Bank Aval, the Ukrainian unit of Austria’s Raiffeisen Bank International (RBI). (Reporting by Marc Jones; editing by Karin Strohecker and John Stonestreet)

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