Page 57 - BNE_magazine_03_2020 wellness

bne March 2020 New Europe in Numbers I 57
Ukraine's bank sector profit triples in 2019 as the sector gets on the path to sustained recovery
Ben Aris in Berlin
Profits in Ukraine’s banking sector tripled in 2019 to hit UAH59.6bn ($2.5bn) as of December as the sector stepped onto square two of its recovery path and a full recovery of the sector is now well underway.
At the same time non-performing loans (NPLs) have begun to fall which remains the biggest challenge the banking sector is facing.
Rising incomes, economic growth and improving confidence are all supporting the recovery of the banking sector. The sector’s profits were a new record high, Kateryna Rozhkova, first deputy governor of the National Bank of Ukraine (NBU) said on Facebook. “I will disappoint critics [by saying] that these are not super-profits of state-owned banks from government bonds. This is the real profit of the banking sector. If you look at the interest income of state-owned banks, the government bonds invested are only 12%.”
The rescue and restructuring of PrivatBank has also gone well. The bank was nationalised by the state in December 2016 when it was found to have a $7.2bn hole in its balance sheet after its former owner oligarch Ihor Kolomoisky stripped the bank of its assets using a scam consisting of making loans to shell companies he controlled.
Ukraine bank sector profit (cumulative UAH mn)
PrivatBank is now state-owned and under new management, who made it the most profitable bank in the country in 2019, earning a handsome $1.3bn in profits. A distant second most profitable bank was Austrian-owned Raiffeisen Bank Aval that earned $195mn.
However, the improvement is more dramatic when drilling into the month- on-month numbers. Ukrainian banks earned an average of UAH4.9bn
a month in 2019 – almost triple the UAH1.9bn they earned in 2018, whereas banks lost an average of UAH2.2bn
a month in 2017, although the bulk of that was concentrated in one month alone: in December 2017 Ukraine’s banks lost a total of UAH28.3bn as
well as big losses in June that year.
Rising profitability is allowing banks to write down bad debts and invest into their regulatory capital to improve their health. The capital adequacy ratio (CAR) – the share of cash a bank keeps on deposit to meeting withdrawal demands – has risen from 12.3% to almost 20% over the same period.
Another positive sign of the recovery of the financial sector is the rise of both deposits and loans. Overall, retail lending has been growing over the last two years and was up 30% in 2019, according to
the NBU, but its volume remains about a quarter of the size of corporate lending which has been doing less well.
Consumer loans can help finance an economic boom and played a key role in this respect during Russia’s boom years in the noughties. However, in Ukraine the volume of consumer loans has not reached the critical mass needed to start the virtuous circle of spending- profits-investment-pay rises turning.
While corporate lending recovered between the middle of 2016 and 2018, since November 2018 it has fallen off again, pulling the overall volume of new loans made in 2019 down to a mild contraction from UAH847bn in January 2019 to UAH822bn as of this January.
With the overnight central bank rate of 11% (and a real interest rate of
a punishingly high c.9%) the cost of capital in Ukraine is still too high for bank credits to be a viable source of investment capital. The NBU has made a series of very deep rate cuts in the last few months and is almost certain to continue this policy in 2020 so corporate loans may improve as the year wears on.
Ukraine corporate NPLS and retail NPLS UAH mn
Source: NBU
Source: NBU
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