How Pavel Shcherban and Alliance Bank management prolonged schemes involving recapitalization and state funds for years

Bank “Alliance” has for the third time failed to sell/place shares from its additional share issuance. On August 22, another deadline granted to the bank’s shareholders for exercising their preemptive right to purchase newly issued shares expired without results.

This was reported by Channel 24.

This either indicates the true state of the bank’s finances — which even its own shareholders do not trust — or suggests that the additional share issuance story is merely a mechanism to prevent the National Bank of Ukraine (NBU) from taking radical measures to remove the bank from the market. In other words, the entire process may have been staged solely to provide the NBU with grounds not to take decisive action. However, such practice apparently does not raise objections from the regulator, since no reaction from the NBU has followed. Ukrainian and foreign journalists have repeatedly and unsuccessfully asked NBU Governor Andriy Pyshnyy to comment on the situation surrounding the financial institution.

Abuses at Alliance Bank

Abuses involving Bank “Alliance” repeatedly attracted the attention of the National Bank and law enforcement agencies in the pre-war years. Among the alleged violations were servicing gambling companies with Russian connections, manipulations involving domestic government bonds (OVDP), and failures to honor bank guarantees issued in favor of the Ministry of Defense.

Following the start of the full-scale war, Bank “Alliance” became involved in a scheme that allegedly caused losses exceeding UAH 1 billion to NPC Ukrenergo. The case concerns a bank guarantee worth UAH 1.85 billion issued in favor of the state company but never honored. Despite the unconditional nature of such guarantees, the bank has been litigating against the state for nearly three years.

The issue is that while presenting itself as a leader in the bank guarantee market and profiting from their mass issuance, Bank “Alliance” allegedly did not possess sufficient resources to fulfill them. For example, the UAH 1.85 billion guarantee issued in 2021 exceeded 25% of the bank’s assets.

According to an NABU investigation into the high-profile case concerning losses to NPC Ukrenergo, the management of Bank “Alliance” systematically falsified reporting and submitted figures to the National Bank understating this guarantee by six times — which in itself should allegedly have been grounds for revoking the bank’s license. An NBU inspection in January 2023 reportedly uncovered not only these violations but also the bank’s non-compliance with other regulatory standards.

Nevertheless, the National Bank opted to support the institution, having granted Bank “Alliance” refinancing loans totaling nearly UAH 2.5 billion in 2022. Apparently, one of the conditions under which the bank was allowed to continue operating was an obligation imposed on management to increase the institution’s authorized capital.

Bank “Alliance” first announced plans to increase its authorized capital by UAH 247 million through a share issuance back in summer 2023. At the same time, media outlets widely reported on permission granted by the Antimonopoly Committee to the Chairman of the Supervisory Board and de facto beneficiary of the bank, Pavel Shcherban, allowing him to acquire a package of newly issued shares that would concentrate more than 25% of the bank’s shares in his hands.

Since then, according to the bank’s own reports, similar decisions regarding additional share issuances have been adopted three more times. However, none of the postponements or extensions for the sale of shares to the bank’s 43 existing shareholders produced any results. Even replacing the Chairwoman of the Management Board failed to help.

Frolova — who was charged and placed on an international wanted list in the NABU case involving UAH 716 million in damages to the state — was removed by the bank’s shareholders in May 2024. However, the acting status of Burkitsya’s successor, who has remained interim chairman for more than three months, has evidently not increased shareholder confidence in the bank’s future. In any case, shareholders showed no desire to invest additional funds into the institution.

Pavel Shcherban himself also does not appear eager to become the owner of 25% of the bank’s shares. According to media reports, over the past year the Chairman of the Supervisory Board of Bank “Alliance” became the founder and sole beneficiary of three companies with a declared combined authorized capital of UAH 2.5 billion.

Whether Pavel Shcherban truly possesses a verified source of these funds and intends to contribute them to the authorized capital of the newly created companies, or whether this represents another scheme for legalizing funds through accounts opened at Bank “Alliance,” remains a question for the State Tax Service.

Moreover, by the end of the year Pavel Shcherban will likely leave his position due to the expiration of his term.

At present, the financial situation at Bank “Alliance” appears to have reached a dead end, leaving the next move to the NBU and Mr. Pyshnyy. Perhaps the bank’s demonstrated inability to resolve its problems will finally force the leadership of the National Bank to publicly explain the reasons behind its continued loyalty toward the institution.