By Olena Harmash

KYIV (Reuters) -Ukraine’s central bank said it will nationalise Russian-owned Sense Bank, one of the country’s top commercial banks, and put it under temporary administration on Friday.

The National Bank of Ukraine (NBU) said in a statement on Thursday it decided to “withdraw from the market the systemically important” bank and submitted a proposal to the government on the state’s participation in the process.

The “safe” transfer will not be noticeable to clients, NBU Governor Andriy Pyshnyi told a media briefing.

Previously known as Alfa-Bank Ukraine, Sense Bank is Ukraine’s 10th largest in terms of assets and is on the list of systemically important banks, central bank data showed.

As part of its economic response to Moscow’s large-scale invasion on Feb. 24, 2022, Kyiv has imposed sanctions on Russia and opened court cases to confiscate assets held by the Russian state in Ukraine and businessmen close to the Kremlin.

In June, President Volodymyr Zelenskiy signed into law the legislation allowing the government to nationalize banks from owners that came under sanctions due to Russia’s invasion.

In his nightly video address, Zelenskiy took note of the central bank’s move, without identifying Sense Bank by name.

“It is now only right that the cabinet of ministers immediately considers the relevant proposals of the central bank and supports them in relation to this financial institution,” Zelenskiy said.

“In the interests of investors, for the sake of financial stability and fundamental justice.”

‘SIGNIFICANT RISK’

The central bank said the connections of Sense Bank’s owners with Russia “pose a significant reputational risk and have a significant negative impact on the bank’s activities.”

“The regulatory capital of Sense Bank fell by 50% in the period from March 1, 2022, to July 1, 2023, while at the same time, it grew by about 29% at other systemically important banks,” Pyshnyi said.

Ukrainian-born Russian-Israeli businessman Mikhail Fridman has a 32.86% stake in ABH Holdings S.A., the majority owner of Sense Bank, while Russian magnate Petr Aven holds 12.4%, the bank said on its website. Fridman and Aven could not be immediately reached for comment.

Sense Bank, with 3 million depositors, posted losses of 7 billion hryvnias ($189.75 million) in 2022, the central bank said.

The Ukrainian financial sector and its banking system have proved remarkably resilient during nearly 17 months of the war under the central bank and government’s policies and strong financial support from Kyiv’s Western partners.

Central bank officials said they discussed their plans to nationalise the bank with the International Monetary Fund, the country’s key lender.

The officials said the government’s decision was expected on Friday and all steps on the bank’s nationalisation should be completed over the weekend.

Fridman and Aven are long-term partners in oil, banking and retail businesses and they face Western sanctions over their alleged ties to the Kremlin following Russia’s invasion of Ukraine. Fridman, who was born in western Ukraine during the Soviet-era times, cast the war in Ukraine as a tragedy.

($1 = 36.8910 hryvnias)

(Reporting by Olena Harmash, Writing by Anna Pruchnicka, Editing by Timothy Heritage, Richard Chang and Sandra Maler)

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