11 May 2019
The banking sector saw
record-high profits in Q1 as banks continued to ramp up retail lending and
actively draw in deposits from the public. Q1 saw a noticeable increase in the
operating performance of banks, state-owned banks in particular, according to the
NBU’s May 2019 Banking
Banks improve loan
portfolio quality and scale up retail lending
Retail lending continued in
rise in Q1, gaining 5.8% in quarterly terms and 34.4% in annual terms. As
before, private banks were the most active in lending to households. At the
same time, the dollarization of retail loans declined to 29.2%.
In January–March, net
hryvnia corporate loans (i.e. loans excluding provisions) were down by 4.6%
compared to the beginning of the year.
This was driven by the seasonal reduction in the portfolio of loans to
state-owned companies and subsidiaries of international corporations, most of
which were repaying loans they had taken out previously. In year-on-year terms,
however, the hryvnia corporate loan portfolio gained 4.5%.
The NPL ratio edged down
1.1 pp to 51.7% as the retail loan portfolio expanded and Ukreximbank
conducted a large-scale financial restructuring. The loan portfolio improved in
quality last quarter for all types of banks, apart from banks with Russian
The NBU leaves unchanged
its projection of 30% yoy growth in net hryvnia
retail lending in 2019. The NBU will assess the risks arising from such a sharp
increase in the loan portfolio. Based on the results of the risk assessment,
the NBU will decide on whether to tighten the loan quality assessment standards
Rates on hryvnia deposits
begin to decline
In January–March, hryvnia
retail deposits grew at the same rate as last year (+3.5%), with private banks
reporting the highest growth (+7.6%). In annual terms, hryvnia retail deposits
were up 15%, following similar increases in the past two years. Meanwhile, the
dollarization of retail deposits fell to 46.3%.
Ukrainians continued to
choose short-term demand deposits over other deposit types: new hryvnia
deposits with maturities of up to three months accounted for 52.4% of all
deposits in Q1. Retail term deposits were up by 4%.
The trend for retail
deposits to increase in value reversed in February. In late Q1, the average
value of 12-month hryvnia retail deposits declined to 15.5% per annum, down by
0.8 pp from its peak value, and by 0.1 pp since the start of the year.
Hryvnia corporate deposits
declined by 4% due to seasonal factors and the payment of taxes by companies.
Foreign-currency corporate deposits increased by 1.1%. State-owned banks were
the only group that reported an increase in corporate deposits in Q1, with
hryvnia deposits rising in all state-owned banks except PrivatBank
(+10.5%). Foreign-currency deposits increased in PrivatBank
Hryvnia corporate deposits
declined, on average, by 0.8 pp, to 13.7% per annum, but remained higher than
the average over the past three-and-a-half years.
Deposits will keep flowing
into the banking sector at the current pace until the end of the year, the NBU
State-owned banks improve
In Q1, the banking sector’s
net earnings increased by 1.5 times yoy to reach
UAH 12.9 billion. Unlike last year, state-owned banks posted an
operating profit in January–March as their operating performance increased.
In Q1, banks reported UAH
4.7 billion in provisions, most of which was made by two banks. The provisions
made by the banking sector in Q1 accounted for 2% of the loan portfolio.
The banking sector will
maintain high profitability on the back of rising demand for banking products,
the NBU believes.
NBU launches stress testing
of 29 banks
The NBU launched the second
stage of its bank resilience assessment – processing the Asset Quality Review
findings confirmed by an external auditor. In addition, the NBU commenced the stress-testing of 29 banks. Early findings are
showing that the number of banks that will need capital injections under the
baseline and adverse stress-test scenarios will decline compared to last year.
Banks are required to form capital conservation buffers of 0.625% by the end of
2019. Every bank will be required to form a capital conservation
buffer starting in early 2020, when the first stage of the implementation of
capital conservation buffers is scheduled to commence. Going forward, the
capital conservation buffer will be raised every year until it reaches 2.5% on
1 January 2023. This buffer will ensure that banks have surplus capital in
excess of the minimum amount required to absorb any possible losses. The buffer
will act as a cushion against potential losses that may arise in a general
economic recession. Banks will be able to form capital conservation buffers
while at the same time meeting their capital adequacy ratios.
During Q2, the NBU will change the methodology for identifying systemically important banks and publish a new list of
these financial institutions. In future, the NBU will require systemically
important banks to form systemic importance buffers. The NBU will inform banks
in advance about the parameters of such buffers.
For more details, see The
Banking Sector Review posted in the Publications section of 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 in that the former:
on banks that were solvent on the reporting date, unless stated otherwise
covering banks together with their branches that operate abroad
on funds deposited in other resident and nonresident banks
adjusted for loan loss provisions, unless stated otherwise
on personal certificates of deposit, unless stated otherwise
information on nonresident customers.