Page 45 - UKRRptOct21

A total of 30 Ukrainian banks, accounting for 93% of all banking assets in the country, underwent stress testing. An independent auditor confirmed that, in general, banks showed positive performance indicators.
The NBU stated that “the banking sector is now quite resilient and ready for the planned increase in capital requirements, despite the impact of last year’s crisis.”
Out of the 30 banks tested, 20 revealed problems with their capital risks, lack of capital or pre-capitalization, requiring fundamental restructuring or transformation, the NBU reported.
Overall the capital adequacy ratio (CAR) of banks, the share of cash they need to keep on deposit to meet withdrawal demands, for the sector of the whole remains a very healthy 21.29% in August – well ahead of the 10% considered the norm in the industry, although the shock-prone emerging market banks tend to prefer a CAR of 20%. However, the CAR has decayed somewhat from a peak of 23% in May, but that is partly due to banks using more of their capital to fund the growing loans business.
Corporate lending remains more or less flat with banks extending UAH806.5bn as corporate loans in August, while retail lending is recovering strongly with banks extending UAH232.9bn in the same month.
Capital requirements for banks have decreased by UAH32.1bn ($1.2bn) over the past two years, but as the chart shows banking capital has been climbing steadily for almost five years.
Higher capitalization and improved loan portfolio quality helped Ukrainian banks survive the coronavirus-related economic shock.
Nevertheless, non-performing loans (NLPs) remain the major unresolved issue for Ukraine’s banking sector, although as 90% of the bad debt is provisioned for NPLs represents no danger to the financing system.
Retail NPLs have been falling continuously in the last five years and despite a small bump in 2020 during the pandemic, the fall in retail NPLs resumed last autumn and the NPL share of retail loans is currently at 21.2%.
Corporate NPLs have been falling less fast, however, the high ratio is largely due to the large volume of bad debt at the state-owned PrivatBank that saw its former owners allegedly siphon $5.5bn out of the bank via a complex web of shell companies and related party loans that the government is now trying to recover via the courts.
Still, NPLs at other banks have been falling steadily as the banks can use profits to retire some debt and the improving economic conditions allow others to pay off debt that had been restructured to give companies relief during the pandemic shock.
Corporate NPLs are now well under the 50% mark and were at 42.9% in August. Privately owned banks lead the way with only 11.4% of impaired debt, followed by foreign owned banks (23.6%) and then state banks (38.6%). At PrivatBank a whopping 71.2% of loans are not performing, but even here that number was down by 8% from August a year earlier.
45 UKRAINE Country Report October 2021 www.intellinews.com