Page 48 - Ukraine OUTLOOK 2024

A high level of non-performing loans (NPLs) remains the sector’s one lingering problem, but as these were over 90% provisioned for before the war, the NPLs that banks still carry on their books have not presented the sector with a systematic problem.
In 2024 banks will play a key role in helping economic growth as a source of funds for investment and repairs. The fact that falling inflation has allowed the NBU to cut rates several times will only bring down borrowing costs and add to the momentum.
Balance sheets continue to adjust under Martial Law. Total banking system assets and client deposits increased by 36% and 51% respectively between February 2022 to August 2023. The rise in assets has been allocated to higher investments in domestic government debt securities and NBUCDs. Loan portfolios continue to shrink slowly, with total lending falling by 7% on aggregate since the start of the war.
The decline in retail lending recently flattened due to an increase in credit card borrowing, while most new corporate lending continues to be through government support schemes (notably the 5-7-9 affordable loans scheme), which has grown to 13% of total lending.
From January to August 2023, net profit of banks grew by more than 11-fold y/y to UAH95bn, mostly due to the high net interest income generated from sovereign and NBU securities.
NPLs stood at nearly 40% at end-September 2023, an 11.5 pp increase since February 2022, though with relatively high provisioning coverage. Short-term liquidity ratios were three times higher than minimum requirements on average at end-September 2023, and banks’ core and total capital ratios have risen to 14.8% and 25.0% respectively.
For the first time since the third quarter of 2022, Ukraine’s banks increased their net hryvnia portfolio of business loans in the third quarter of 2023, and the increase in consumer loans continued for the second quarter in a row, the National Bank of Ukraine (NBU) said in the review of the banking sector for the third quarter of 2023 .
Lending rates were recovering in all segments as the year drew to an end on the back of cheaper borrowing costs. Over the last five months of 2023, the National Bank has been observing the recovery of lending growth rates in all retail, mortgage and even corporate segments. A survey of bank credit managers indicates that they expect the growth of loan portfolios in 2023 and 2024 by at least 10%. Also, in the third quarter, the volume of net mortgage loans expanded by 18.7% due to the issuance of loans under the "eOselya" programme that has breathed some life back into Ukraine’s mortgage market.
48 UKRAINE OUTLOOK 2024 www.intellinews.com