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8.1.3 Banks specific issues
As interest rates dropped over the last two years, the size of mortgages increased by 43%, to $25,000, the National Bank of Ukraine reported recently on Facebook. However, 87% of the loans were for secondary homes, largely dachas. Last fall, the average effective mortgage rate on the secondary market was 14.9%. On the primary, it was 18.2%. The new home mortgage subsidy program is reserved for first time buyers.
In an article for NV Business, Deputy Governor of the National Bank (NBU) Kateryna Rozhkova offers her forecasts for the Ukrainian financial sector during the coronavirus pandemic’s second year.
The way she sees it, there are 11 key trends that will appear in 2021:
· State-owned banks will remain dominant despite the start of privatization.
· There will be a significant reduction in the number of non-performing loans, as state-owned banks plan to reduce non-performing assets by more than UAH 400 billion ($14.3 billion) by the end of 2022.
· Banks will continue to offer low interest rates (below 10%).
· Deposits will continue to grow.
· Foreign currency will become increasingly less profitable for both banks and their customers, due to incentives for “dedollarization” (Rozhkova says that “reducing the level of dollarization from the current 40% to an acceptable 15–20% is possible” if there are “no shocks”).
· Banks will find it increasingly difficult to turn a profit, forcing them to reduce costs.
· E-commerce will continue to grow in tandem with demand for online banking; banks will have to update their technology and are likely to continue closing branches as cashless transactions grow.
· Loan portfolios will begin to recover; mortgages will continue to grow, along with the number of loans to small- and medium-sized businesses.
· The consolidation of small banks will continue.
· Non-banks will be unable to compete with banks for profits.
Rozhkova’s eleventh and final “key trend” concerns the work of the NBU itself. In her words, the central bank is facing a “long list of tasks,” including maintaining prices and financial stability, and supporting economic recovery after the coronavirus crisis ends.
“Here, more than ever, we need a stable and strong financial sector, balanced
55 UKRAINE Country Report February 2021 www.intellinews.com
