Page 45 - UKRRptJun19

8.0 Financial & capital markets 8.1 Bank sector overview
Ukraine’s bank sector is returning to health. The capital adequacy ratio is in the healthy mid-teens, NPL growth has been frozen (but remains very high) but banks have adequate provisions for bad loans so they no long threaten the stability of the sector. And profits are rising which will provide the cash to continue the clean up.
Ukraine's banking system boosts net profit by almost 52% in Q1. Banks' revenue over the period under review grew by 29% to US$2.2bn, while their expenses rose by 23%, to US$1.7bn.
While banks are struggling to shed their bad debt, where they are making progress is in restructuring this debt and reducing the amount of capital they have to put aside to cover it. In 2018, the amount of payments to reserves more than halved, to UAH 23.7bn in 2018 from UAH49.2bn in 2017.
However, the wobbly nature of the banks' balance sheets is holding back the business. In the last two years deposits have remained largely flat as have bank loans.
Companies make up the bulk of loans and increasing the resources for companies to borrow would feed economic growth. But in the wake of the economic crash the NBU had to hike rates and at its meeting on March 14 kept them at a punishing 18% as the fight against double-digit inflation is still taking priority. At this level the cost of borrowing is so high that projects are not economically viable if the investment capital has to be borrowed.
Retail lending remains very depressed for much the same reasons. In Russia’s boom years the consumption led boom was fuelled by soaring consumer credits, which in turn were fuelled by steadily falling borrowing costs.
Ukraine has a consumer borrowing fuelled boom to look forward to, but clearly it is still too early for this to start and interest rates need to come down a lot more before this particular virtuous circle of borrowing-spending- investment-profits-wage hikes starts turning.
45 UKRAINE Country Report June 2019 www.intellinews.com