Banking Sector is Once Again in the Black and Continues Active Retail Lending: Banking Sector Review
In Q1 Ukrainian banks were once again in the black after bearing losses in Q4 of 2017. Also, banks continued active retail lending and attracting retail deposits according to the May quarterly Banking Sector Review released by the National Bank of Ukraine (NBU).
Banks continue active retail lending
Consumer lending remains high: In Q1 retail loan portfolio increased by 5.6% to UAH 83.8 billion, or by over 37% yoy. Most active retail lenders in January–March were state-owned banks and private Ukrainian banks. Ukrainians mostly borrow money to cover current needs such as home appliances and others.
The corporate loan portfolio saw hardly any change. Banks focused on improving quality of the current portfolio, a series of restructuring measures were undertaken for non-performing loans to release loan loss provisions for loans that were performing.
Despite the rise in retail lending and successful business debt restructuring, the share of NPLs increase by 1.8 pp up to 56.4% of the total debt of the banking sector. The change in accounting methodology of financial instruments was the contributing factor.
Retail deposits continue to rise
According to first three months of the year, retail deposits rose by 2.0% under the fixed rate at the beginning of the year up to UAH 475 billion, at the same time both hryvnia and foreign currency deposits expanded (by 3.2% and 0.8% in USD equivalent respectively). Deposit growth rates are prone to acceleration due to a boost in nominal income of Ukrainians.
Corporate deposits decreased by 4.8% during the quarter to UAH 398 billion due to seasonal factors. Growth of UAH corporate deposits was indicative only of state-owned banks (save PrivatBank) by 3.6%, and in foreign currency - in private banks and PrivatBank by 6.7% and 1.3% in USD equivalent respectively.
The structure of banks’ liabilities in Q1showed practically no change: the share of corporate and retail funds accounted for 76.8% of liabilities. Retail deposits make up over 40% of total bank funding.
FX deposits have once again beat the record low
In response to a tight monetary policy of the NBU, banks ceased to decrease interest rates on retail hryvnia deposits: The value of 12-month retail hryvnia deposits remained at 14.2% over the last 5 months. At the same time a slow downslide of interest rates on FX deposits continues. Once again, these interest rates beat the record low: The value of 12-month USD deposits dropped by 0.3 pp to 3.3% p.a.
Interest rates on corporate hryvnia loans edged slightly higher by 1.1 pp to 15.5% p.a., interest rates on retail loans increased by 0.4 pp.
In Q1, banks made net profit of UAH 8.7 billion
Profitability of the banking sector is moving higher. In January-March, banks made net profit of UAH 8.7 billion that is almost a three-fold increase in contrast to the indicator yoy. These financial results can be attributed to a plummeting provisioning as a result of improved financial standing of borrowers and completed restructuring of a number of NPLs.
The banking system is expected to keep increasing profitability on the account of improved operating profit and further decline in provisioning.
In Q1, banks initiated conversion to IFRS 9. Reduction of equity associated with converting to the new standards was largely set off by profits of the banking sector in Q1. Adjustments to the new standard will last till the end of this year. Banks’ profits and losses presented in Q1 statements are preliminary and pending correction.
For greater detail, see posted in the section on the NBU’s website.
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 covering banks together with their 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.