bne IntelliNews – Ukrainian banking system puts worst of war shock behind it as sector returns to profit

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Ukraine’s banking sector is holding up amid the storm of war sweeping the country and returned to profit in May after losing money in the first two months of the war, according to the National Bank of Ukraine ( NBU).

The country’s banks were expecting a bumper year in 2022 after profits hit their highest levels since the Euromaidan revolution in 2014 (chart).

Banks started the year with a monthly profit of UAH 7,145 million, but growing tension at the Russian border, where troops were accumulating, dented profits already in February, then suffered an outright loss and simple of 10,069 million UAH in March after the start of the invasion. . Earnings remained negative in April, but rebounded in May as Russia entered its phase 2 of the war and concentrated all its forces in Donbass. Ukrainian banks made a profit of UAH 6,116 million in May, on par with their profits in May a year earlier and twice the amount banks earned that month in 2020 (chart).

May’s rebound largely helped to erase the cumulative losses of the loss-making months of March and April, but the sector remains slightly in the red at the end of May after having lost a cumulative UAH 1,310 million to date.

Nevertheless, returns on assets and equity fell below zero in March and April, before returning to around zero in May (chart).

Despite the decline in profitability and the uncertainties caused by the war, non-performing loans (NPLs) continued to decline. The industry average NPL fell to 27.6% in May, down more than 10pp from a year earlier and 20pp from the same month two years earlier.

The now state-owned PrivatBank, which was nationalized in 2016 after nearly going bankrupt, remains the family’s problem child, but here too NPLs have fallen from almost 80% of its loan book in 2020 to 68.3% in May this year. Foreign banks fare best, with NPLs at near-normal levels of 7.4% in May, and private Ukrainian banks are close behind at 12.4%. State-owned banks are on par with the industry average with 27.6% of their distressed loan portfolio, but even there huge progress has been made, as the NPL ratio was just above 50% a year ago. two years old.















NPL % of loan portfolio

May 20

May 21

May 22

non-performing loan ratio, %

49.34

39.57

27.64

included banks:

with State participation, including:

65.07

56.61

45.03

Private bank

79.36

72.26

66.3

State banks ex-PrivatBank

51.62

43.76

27.56

Foreign ownership

33.49

26.52

7.39

Private property

18.81

13.06

12:43 p.m.

Insolvent

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0

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Source: NBU

The credit activity comes back to life

The NBU said Ukrainian banks no longer needed refinancing from the regulator in June and plans to ease some of its controls as the economic situation stabilizes.

Nonetheless, banks remain under pressure as the cost of NBU refinancing jumped after the regulator more than doubled rates to a whopping 25% June 2 to contain inflation and support the currency.

A refinance rate of 27% applies to all new loans and certain existing loans. The increase in the cost of refinancing penalizes the banks which could consider using these tools in the future. This increases the cost of refinancing these loans with a floating rate, which was not fixed due to interest rate swaps with the NBU.

With some semblance of normalcy returning to large parts of the country, lending activity remained remarkably stable, but overall personal and business borrowing declined in March following the start of the war (chart).

The slowdown in credit is explained by the dislocation of commercial activity which clearly began in March. The NBU estimates that the economy will contract by around 35% this year, which will keep banking activity sluggish. In general, business loans remain below the level of previous years (chart), while personal loans are well ahead (chart).

Individually, the big banks are beginning to come back to life. The Soviet-era savings bank, state-owned Oschadbank, said in June it would start accepting applications for new business grants in July. From July 1, the state savings bank will start accepting applications from Ukrainians for micro-grants of up to 250,000 UAH ($85,000) for a new business or the development of an existing one.

According to a government decision, Oschadbank has become the authorized bank of the new state program eRobota (e-Work), which will provide Ukrainians with grants of up to 250,000 UAH to start a new business or expand an existing one. Any Ukrainian natural or legal person can become a participant in the program.

With a state subsidy in the amount of up to 250,000 UAH, an entrepreneur or legal entity will be able to purchase equipment, pay for raw materials and equipment, and make partial payment of rent. If one or two jobs have been created for more than three years and the company pays taxes during this period, the subsidy does not have to be repaid.

The NBU has also tried to boost trade by increasing the credit period on import-export transactions from 90 to 120 days from June 8.

And in anticipation of the post-war period, Kyiv plans to create its own bank for reconstruction and development. International financial institutions (IFIs) and multilateral development banks (MDBs) are all already present in Ukraine – and the European Bank for Reconstruction and Development (EBRD) is already actively lending to key services and infrastructure operations – but Bankova wants its own development bank as part of its overall reconstruction plan. The new development bank could rely on one of the existing public banks.

“The Ukrainian bank will be an analogue of the German KfW, a bank that was created for reconstruction after the Second World War, through which funds were channeled into the German economy,” the head told UNIAN. of the tax committee Danylo Hetmantsev. to be able to lend to entities in times of increased risk and to allow entrepreneurs to develop and grow.

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