Page 50 - UKRRptDec18

8.0 Financial & capital markets 8.1 Bank sector overview
Banking system stabilized following three years of transformation, although systemic challenges remain. Non-performing loans reached 56% of total gross loans in Q2 2018. Market share of state-owned banks (SOBs) is exorbitant as they account for approximately half of the system-wide assets. They suffer from weak corporate governance, highly concentrated loan exposures, low quality of assets and suboptimal business models.
The largest 25 Ukrainian banks increased their net profit by 4.8-fold year-on-year to UAH10.9bn ($387mn) in January-September, according to the National Bank of Ukraine's (NBU).
Earlier, the regulator attributed positive 2018 financial results in the banking sector to the fact that retail lending and fee and commission income continued to drive operating income. The central bank believes that the banking sector will be profitable as of the year-end.
The best result was shown by state-owned Privatbank , which received a net profit of UAH5.093bn in January-September against a net loss of UAH1.604bn in 2017, according to local media. The government nationalised Privatbank in December 2016 after it failed to fulfil a three-year recapitalisation plan .
The NBU saidin October that eight out of 24 Ukrainian banks need capital injections . The banks account for more than 90% of the assets of the entire banking sector and recently participated in recent stress tests run by the NBU, which concluded they require additional capitalisation of the total amount of UAH6.1bn ($217mn).
According to the regulator, the eight banks should complete the capitalisation programme before the end of this year.
As part of a stress test under the unfavourable scenario, another five banks require recapitalisation, along with these eight banks. The total capital requirement of 13 banks under an unfavourable scenario is UAH42.1bn.
To meet the capital requirements under an unfavourable scenario, banks must develop and implement a restructuring plan by the end of 2019, the NBU says. The plan allows for measures to improve the quality of the loan portfolio, restructuring loans (including in line with the law on financial restructuring), strengthening collateral, collecting collateral for troubled loans, selling non-core assets, optimizing operating expenses and other measures.
50 UKRAINE Country Report December 2018 www.intellinews.com