Page 44 - UKRRptJun20

8.0​ Financial & capital markets 8.1​ Bank sector overview
So far the coronacrisis has not had much visible impact on Ukraine’s banking sector​. The bad loans are well provisioned. Capital adequacy is high, in the 20s so banks have some ammunition to deal with customer’s nervousness. And the liquidity of the sector is fine.
Ukraine’s banking sector has been resilient thus far, but it will face substantial losses this year​. The first three weeks of the crisis in March proved to be tough for the banking sector, but it weathered the turbulence surprisingly well.
Liquidity was abundant in both UAH and FX and early signs of bank runs faded quickly – smooth servicing of obligations comforted bank customers.
Retail deposits in hryvnia continue to grow and FX deposits are declining only marginally, which suggest that customer confidence in the banking sector is high, reports Concorde Capital.
While there is unlikely to be a bank crisis, the main damage will be done by declining demand, ​which will result in lower fees and commissions, while operating expenses are robust as cost optimization measures are still to be taken.
Non-performing loans already make up just under half of all bank loans, but during the clean up that started in 2016 most of these loans have been provisioned and so do not pose a risk to the system.
However, the quality of loans will sour again and this will become a key test for the banking sector in 2020. As the NBU has closed down over 100 banks in the last few years there are unlikely to be fresh bankruptcies now, but banks will be squeezed across the board. NPLs still hold an extremely high share (49% in March) but they are more than 90% provisioned. The current crisis will further pressure asset quality.
At this point, any estimates of losses would be premature – the true scale of losses will become clear in 6-9 months,​ says Concord Capital.
“Still, by our estimates, the capital buffers that most Ukrainian banks managed to accumulate over the past couple of years should be enough to absorb credit losses,” says Concord Capital. “Capital adequacy at many banks is twice the minimum requirement. Large bank bankruptcies are highly unlikely during the current crisis, but banks are also unlikely to provide an uninterrupted flow of credit to the economy. Even in good times, banks’ appetites for new lending has been very limited as creditor protection rights remain poor. The lack of credit may impede the future recovery and the government’s efforts to roll out a credit guarantee scheme for SMEs is critical at this point.”
44​ UKRAINE Country Report​ June 2020 ​ ​www.intellinews.com