Page 45 - Eastern Europe Outlook 2020

the UAH1.4bn it had earned in the first nine months of 2017.
At the same time the return on assets (ROA) has also improved from under 2% for most of 2018 to almost 5% in 2019 with the ROA reading 4.9% in October.
Despite the growth in profits the level of NLPs in the bank sector remain extremely high. The sector average of NPLs fell under 50% for the first time in years this summer and was 48.9% as of October this year, however, the distribution of NPLs remains very uneven.
One piece of good news is that the NPLs of the banks deemed insolvent have been written down and their share in the overall NPLs in the sector has been removed, improving the health of the whole sector. Another piece of good news is that most of the NPLs have been provisioned for so they do not represent a systemic risk to the system. But the downside of this prudence is that a lot of banking capital is now tied up as provisions for bad debt. However, as the sector continues to return to health and these bad debts are either paid off, or written off, the release of capital provisions means the sector can dramatically accelerate once the momentum towards recovery begins to build as this capital becomes available to fund lending.
Stress tests reveal that two state-owned banks, Oschadbank and Ukreximbank, have 81% of all bad bank debt in the country. “They may require substantial amounts of capital should adverse macroeconomic scenario materialise,” the central bank reported. “Their financial resilience is low; these financial institutions are vulnerable to potential crises.
45​ EASTERN EUROPE Outlook 2020​ ​ ​www.intellinews.com