In 2017 Banks Restored Household Lending and Reduced the Share of Non-Performing Loans: Banking Sector Review
In 2017, the banking sector improved, i.e. after more than a three-year crisis almost all key banking indicators showed a positive trend. Banks enhanced household lending and were issuing new business loans according to the sixth quarterly Banking Sector Review released by the National Bank of Ukraine.
In 2017, household lending increased substantially, i.e. net hryvnia loans increased by 42%
PrivatBank and private banks accounted for the highest lending rates. Consumer lending is reputed to be the increase driver.
In H2, banks accelerated new loans disbursement to businesses. In 2017, foreign and state-owned banks generated the largest increases in net hryvnia corporate loans by +17.5% and +12.8% respectively. Key corporate borrowers mainly responsible for corporate lending growth were government monopolies, trade and agricultural companies. Rates on corporate hryvnia loans and loans to households remained largely unchanged.
Fostered issue of new loans had a positive impact on banks’ loan portfolio. The percentage of non-performing loans declined by 3.2 pp to 54.5% in H2.
In 2018 the NBU expects continued surge in consumer lending, as well as recovery of business lending in hryvnia.
Customer inflows to the banking system persist
In 2017, hryvnia household deposits grew by 22.4%, while foreign currency ones remained flat. PrivatBank and Oschadbank generated the largest growth in hryvnia and foreign currency household loans respectively.
Hryvnia corporate loans grew by 13.6% in 2017. Foreign currency corporate deposits declined by 10% in the US dollar equivalent.
Despite the decline in interest rate throughout the year, the funding base remains stable. All in all in 2017, the structure of liabilities was noted for a spike in corporate and household deposits by 2.1 pp to 77.1%.
Costs of deposits in 2017 substantially decreased
Generally in 2017, interest rates on hryvnia deposits decreased by 3.2 pp to 14.3% per annum (on annual deposits).
At the same time, after the NBU gradually increased the key policy rate to 16%, costs of short-term deposits in hryvnia (up to 6 months) rose by 0.2-0.4 pp compared to October 2017, when the key policy rate was scaled up for the first time.
Rates on household foreign currency deposits have remained at an all-time low of 3.7% per annum (annual deposits).
The number of banks exhibiting profitability rose
In the last year, unprofitable banks declined from 33 to 18 in 2016. According to the NBU projections, in 2017, operating income in the sector advanced by 10% per annum.
However, due to increased provisioning the banking sector closed the year with losses of UAH 24.4 billion mostly on account of four major banks, such as PrivatBank.
Final financial statements indicators of banks for 2017 may be adjusted following the results of the annual audit before late April.
Data on loans and deposits published in the "Banking Sector Review" differ from the corresponding data published in the "Monetary Statistics" since the former details:
- data on banks solvent as at the reporting date, unless otherwise specified;
- data furnished by banks, as well as branches operating abroad;
- funds deposited with other resident and non-resident banks;
- exposures adjusted for loan loss provisions, unless otherwise specified;
- data on personal certificates of deposit, unless otherwise specified; and
- information on non-resident customers.