Ukraine imposes new sanctions on Kremlin-owned banks

KIEV (Reuters) - Ukraine will impose sanctions on the Ukrainian subsidiaries of Russian state-owned banks, the central bank said on Wednesday, part of a wider crackdown over increased tensions in eastern separatist regions.

Members and supporters of the National corp political party erect a wall of concrete blocks and paint graffiti outside a branch of Sberbank, which is the local subsidiary of Russia's largest lender, during a protest in Kiev, Ukraine, March 13, 2017. REUTERS/Valentyn Ogirenko - RTX30SAI

The restrictions will ban the banks from taking money out of Ukraine, Kateryna Rozhkova, a deputy central bank chief, told journalists in a briefing.

Five Russian state-owned banks are present in Ukraine with a combined market share of 8.6 percent and liabilities of 36 billion hryvnia ($1.3 billion). Sberbank, VEB and VTB are among the top 20 largest lenders.

The banks have already been banned from increasing their assets and deposits following a breakdown in relations between Ukraine and Russia in 2014 due to Moscow’s annexation of Crimea and support for pro-Russian separatists.

“These banks have a high level of debt to their parent structures. Sanctions prevent these debts being paid,” Rozhkova said.

Sberbank’s press office said it could not comment fully until the decision was finalised, but expressed hope that Ukraine’s authorities would show “wisdom and foresight.”

The new sanctions were requested by Ukraine’s Security and Defence Council, which earlier on Wednesday also halted all cargo traffic with rebel-held territory, formalising an existing rail blockade that has fuelled the worst political crisis in nearly a year.

Increased political tension and a flare-up in the eastern conflict earlier in 2017 has prompted activists to protest against the continued presence of Russian banks in Ukraine.

On Monday, Sberbank said it was concerned by the protests, which included a nationalist group walling up the entrance to one of its branches in Kiev with masonry and cement.

The latest restrictions do not apply to private banks that operate in both Ukraine and Russia, such as Alfa Bank and Ukrsotsbank, which account for 7 percent of assets in Ukraine’s banking system.

Rozhkova said the sanctioned banks’ liabilities were completely covered by their assets and the restrictions would not prevent the lenders being sold.

VEB and VTB are already in talks to sell their Ukrainian subsidiaries.

Reporting by Pavel Polityuk; Additional reporting by Kira Zavyalova and Alexander Winning in Moscow; Writing by Alessandra Prentice; Editing by Alison Williams and Toby Davis