Frequently asked questions about the resolution of insolvent banks

Generally speaking, this means that the NBU decides that a bank has significantly violated the requirements for conducting banking activities. For this case, all Ukrainian banks that attract retail deposits are obliged to insure their depositors with the DGF. In each agreement with a depositor or creditor, the bank must state that the funds placed with the bank are guaranteed by the DGF in accordance with the law, and post relevant information in each of its branches.

The NBU makes the decision to declare a bank insolvent on its own. After receiving the decision to declare a bank insolvent, the DGF acts in two ways. First, it starts paying out guaranteed deposit compensation within the timeframe established by law. Second, the DGF acts as a temporary administrator to preserve assets and find the best way to resolve the insolvency.

Regardless of the way the bank is removed from the market, the DGF will start paying out the guaranteed compensation within the period established by law - 20 or 30 (for large banks) business days.

Since 2012, the DGF has provided guaranteed compensation to depositors of more than 100 insolvent banks for a total amount of over UAH __ billion.

Not a single depositor has lost a single penny of their deposit within the guaranteed amount since 200_.

Information about the DGF, which is available in every Ukrainian bank, is a symbol of the confidence of Ukrainians in the protection of their savings.

The way the DGF fulfills its obligations on unpaid deposits depends on the chosen resolution option. That is, you can receive a guaranteed compensation before the start of the resolution or:

The DGF can sell the bank to another owner, who will have 1 month to fix the bank's financial condition. During this time, only funds on current accounts and expired deposits are subject to repayment. After the bank is recapitalized by the investor, full access to all deposits and other banking services must be restored under the terms of the agreements concluded with the insolvent bank.

The DGF may also attract another bank interested in new customers - an acquiring bank. If you have not received the guaranteed compensation by the date of transfer, the DGF will determine the list of deposits to be transferred and transfer the relevant deposits or part of them to the receiving bank, based on the priority of creditors. During such transfer, the acquiring bank will independently open accounts for you and allocate your funds transferred to it on the same terms and conditions as they were placed in the insolvent bank. The Fund will not ask for your consent to such a transaction and will take all necessary measures on its own.

How to get funds from the new bank is described here. Claims on deposits that are not included in the creditors' queues to be transferred to the receiving bank remain in the insolvent bank and will be satisfied during its liquidation by selling the bank's non-transferred property.

The DGF may also establish a bridge bank and transfer the funds of the bank's depositors and creditors, together with the property of the insolvent bank, to this bridge bank. The bridge bank is then sold to an investor. This approach resembles a combination of the previous two and therefore requires more time. In this case, the investor has up to 3 months to bring the financial condition of the transitional bank into compliance with the requirements of the law. During this time, only funds from current accounts and expired deposits must be paid out. Three months after its foundation, the bridge bank must become an ordinary bank and provide you with services in accordance with the contract you had concluded with the insolvent bank. No action on your part is required until you receive an invitation to identify yourself with the bridge bank.

If a systemically important bank is being removed from the market and the state agrees to buy it, the Cabinet of Ministers of Ukraine may decide to convert part of the deposits held by shareholders, other persons related to the bank, sanctioned persons, etc. into bank shares or write them off. Such deposits are not guaranteed by the DGF and are not repaid in this case. Other depositors and creditors will have access to their accounts restored from the date of acquisition of all bank shares by the state;

if there is no buyer for a systemically important bank or its assets and the state does not approve the decision to participate in the resolution, and it is impossible to liquidate the bank, the DGF has the right to establish a bridge bank on its own, transfer all or part of the funds of depositors and creditors to it, and search for a new owner for the new bank within two years. Immediately after the transfer of the insolvent bank's liabilities to the bridge bank, it must comply with all banking law requirements and fulfill all agreements with depositors.

The last and most common option for removing a bank from the market is its liquidation with the DGF providing a guaranteed compensation. In this case, the non-guaranteed funds are repaid through the sale of the bank's property during the liquidation procedure.

 Examples of different ways of withdrawing from the market are described here.

How is the amount of deposits to be transferred to another bank determined?

Deposits of the insolvent bank are transferred to the receiving or bridge bank only together with the assets of the insolvent bank - loan portfolio, securities, bank real estate, etc. The DGF usually allows bidders in an open tender to choose the assets they want to receive.

At the same time, the amount of transferred deposits and other liabilities is always equal to the value of the transferred property (assets). That is, the more the receiving bank or investor of the bridge bank wants to acquire the assets of the insolvent bank, the more liabilities the DGF will be able to transfer. Therefore, it is impossible to say in advance what amount of property (assets) and deposits will be transferred and what part of them will remain in the insolvent bank.

Usually, the DGF starts paying guaranteed compensation before the date of transfer of liabilities, including guaranteed deposits, to the acquiring bank. The DGF's outstanding guaranteed deposits (up to the guaranteed amount) are always transferred in full and in first priority. If the total amount of the transaction allows, the DGF transfers other liabilities to the receiving or bridge bank in full or in part. How to obtain the transferred deposit from the receiving bank is described here.

The part of the liabilities that was not transferred to the receiving or bridge bank is subject to repayment through the sale of the remaining assets of the insolvent bank during its liquidation.

Priority of creditors

The law applies the principle of priority of creditors to the transfer of liabilities. The first two creditors' priorities include the bank's debts for damage to life and health of citizens and for the payment of wages. Guaranteed deposits unpaid by the DGF also have the highest priority and must be transferred in full (up to the guaranteed amounts). Then, if possible, the remaining deposits of individuals unrelated to the bank are transferred, then - claims of the NBU, then - legal entities and other liabilities. The last priority of creditors includes liabilities of persons related to the bank (shareholders, management, etc.).

Liabilities pledged by the bank as collateral are transferred together with the pledged assets (if there is demand for them) out of turn, while maintaining the original burden.

 If the DGF has started to pay out a part of the guaranteed deposit compensation before the transfer to the receiving or transitional bank, the DGF stands in the queue to replace the deposits repaid by it.

The DGF has the right to evaluate the bank's property according to its own methodology, but in practice it always engages independent appraisers. The DGF compares the price offers of the bidders for the assets they select with the projected net income from the sale of the property that could be generated if it is sold at the appraised price. This takes into account the projected costs of the liquidation procedure and the possible timing of the sale of the property.

If the price offered by the bidder is lower than the future net income, the DGF rejects such a bid because it does not correspond to the least cost test. In this case, it is more beneficial for depositors and other creditors that the DGF sells the property itself during the liquidation procedure and uses the proceeds to repay the bank's creditors.

If the price offered is high enough, the property is transferred to the receiving or bridge bank at the price offered by the winner of the tender.

 This ensures repayment of the maximum possible amount of the bank's liabilities.

The DGF posts on its official website information about the introduction of provisional administration, the winner of the open tender, and the main stages of the resolution plan. Additionally, the DGF announces the start of guaranteed compensation payments.

Also, in the case of a resolution involving an acquiring bank or investor, the DGF itself posts an official notice and obliges the receiver bank/investor to inform each depositor (creditor) as soon as possible and provide them with further instructions. Such notification may be sent by mail, e-mail, SMS, etc. in accordance with the contact information you provided to the insolvent bank or by posting information on the bank's website.

You can also always contact the hotline of the DGF or the relevant bank.

The law provides that during martial law in Ukraine and within 3 months after its termination, the DGF guarantees the entire amount of an individual's deposit. In other words, until the end of the war, the DGF guaranteed that it would reimburse any individual depositor who did not fall under the legal exceptions (shareholders, bank managers, etc.) or transfer the entire amount of his deposit to another bank, regardless of its size.

After the martial law will be lifted, the guaranteed amount will constitute UAH 600,000.00 per individual depositor in one bank (regardless of the number of deposits in that bank).

 Debts to legal entities are not guaranteed by the DGF and are repaid in the process of liquidation/transferred to another bank according to the priority of creditors.

In case the DGF transfers your accounts to the acquiring or bridge bank, the Law requires this bank to re-perform the procedure of depositor (creditor) identification. This is to ensure that your funds are not accidentally given to another person. This procedure can be carried out by your new bank remotely using appropriate IT tools or directly at a bank branch.

After that, you can dispose of your money in accordance with the terms of the contract you concluded with the insolvent bank. The terms and conditions of the deposit agreement shall remain in force after the transfer; no amendments to the agreements are required by law. Wait for the relevant notification from the receiving or bridge bank and agree with it on the method and date of your identification or contact any of its branches.

 The terms of the deposit transfer ensure that the receiving or bridge bank does not benefit from delaying the identification of depositors. However, given that tens of thousands of deposits may be transferred at the same time, the notification may be received after some time. The acquiring bank may offer you to voluntarily sign a new deposit agreement on different terms, and you may accept or refuse.