KIEV, Dec. 18 - Ukraine’s government said late Sunday that it is nationalizing Privatbank, the country’s largest private lender, to avert a financial meltdown, The Wall Street Journal reported.

The decision, announced in a statement on the government’s website after a meeting of the cabinet of ministers, is the culmination of a two-year effort to overhaul Ukraine's banking system, which has been rocked by economic woes caused by a conflict over more than two years with Russian-backed separatists in the country’s east.

The government said the move was undertaken in coordination with Ukraine’s international lenders and with their support, and that it would ensure a smooth transition and the stable running of the bank. Ukraine has relied on billions of dollars of loans from the International Monetary Fund for the past two years, although recent installments have been stalled by the slow pace of economic and anticorruption overhauls.

The government said its decision was needed to “save Privatbank and the whole banking system.”

Ukraine has been cleaning up its banking sector in the last two years, shuttering several dozen ailing lenders in a rare success for the country’s pro-Western leadership.
But it has long held off from Privatbank, which was controlled by powerful tycoon Ihor Kolomoysky and accounts for around one-third of all deposits in the country, despite concerns that it needs billions in additional capital.

Kolomoysky, a billionaire who owns one of the country’s most popular television channels, has helped fund pro-government units who fought Russian-backed separatist in the country’s east since 2014. The tycoon was governor of the eastern Dnipropetrovsk region until President Petro Poroshenko ousted him in 2015 amid a struggle for control over the state oil company, which is partly owned by Kolomoysky.

The government said the bank’s owners had requested nationalization. There was no immediate comment from the bank or its owners late Sunday.

“It’s a positive move with a likely painful initial shock,” including pressure on the Ukrainian currency, the hryvnia, said an analyst with a Western bank who is not authorized to comment publicly.

Recapitalizing Privatbank and other large lenders, as well as reducing their lending to shareholders, is part of the $17.5 billion IMF bailout program.

National Bank officials have accused some of the country’s tycoons of using lenders as little more than private piggy banks. Some depositors from closed banks have taken to the streets in recent weeks to protest against the National Bank. (asj/ez)