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Ukraine’s banking sector continues to make good progress in recovering from the hits it has taken this year from external shocks and fundamentally remains healthy, even if growth remains anaemic.
Bank assets have grown strongly for the last two years and continue to expand, rising from UAH1,359,703mn ($48bn) in January 2019 to UAH1,494,460mn a year later and reaching UAH1,739,726mn ($61.5bn) by November this year.
Following a catastrophic 2017 when banks were in deep crisis, the return on assets (ROA) has recovered to 2.99% as of November 2020 and return on equity (ROE) to 23.22, down from the low 30s for over a year before that until July, when ROE fell back to the 20s as growth stabilised.
Retail loan growth has been rising steadily for the last three years, but stalled in October as the second wave of the coronavirus (COVID-19) hit. Corporate loans were up at UAH829.3mn ($29.3bn) as of November vs UAH 211,238mn in loans to individuals.
Loans to corporates, on the other hand, have been falling since their peak of UAH997,762mn in February 2019, after which there was a brief bump in April 2020 as the corona-panic set in and banks loaded up on cash to deal with the shock, but quickly returned to falling in the summer and is currently back to the lows set in April.
The cumulative profits at the end of November remain well ahead of those at this point in 2017 and 2018, but well behind those in November 2019, which was the first year of strong growth after the 2014 revolution. By way of comparison, the Russian banking sector also took a hard hit from the coronacrisis in the summer months but cumulative profits are already back to pre-corona levels, whereas Ukraine’s banking sector posted a cumulative profit of UAH39,828mn in November this year, a bit more than half of the UAH59,000mn it posted in November the year before.
On a monthly basis November was exceptionally poor, with banks posting UAH2,224mn in profits for the month compared with UAH7,009mn in the same month a year earlier. Banks started the year posting very high profits between January and March and had been on course to beat their 2019 results easily, but the coronacrisis completely undid that story and by June banks were posting big losses collectively of –UAH5,174mn before going back into the black the following month.
Despite being buffeted by external shocks following the bank sector clean-up by former NBU governor Valeriya Gontareva, happily the sector remains a lot more robust than it was a few years ago. The sector’s capital adequacy ratio (CAR) is a heathy 21.76% in November, and while NLPs remain high at 48.05% of the total loan book, some 90% of this bad debt has already been provisioned for and it doesn't represent a danger to the system.
In general the NPLs continue to fall slowly but the excess profits the banks should have earned this year could have been used to retire more bad debt. A lot of bad debt amongst the insolvent banks was retired in July 2019 but since then the process has stopped, and indeed in July this year some new insolvent bad debt appeared.
State-owned banks hold the largest share of NPLs, with 61.9% of their loan books being bad debt that has barely changed in the last year. Of these state-owned banks, by far the largest share is held by PrivatBank, where 79.2% of the debt is bad – what the management of the bank calls the “fraud debt” that was created when the bank was owned by oligarch Ihor Kolomoisky before it was nationalised in 2016.
The situation amongst the banks with foreign capital is better (30.7% NPLs) and best of all at the privately owned local banks (16.8%), which are actively retiring their NPLs. If the current trends continue the privately own banks should clear their NPLs within three or four years and the banks with foreign capital maybe a year longer.
NPLs % of loan book
ratio of non-performing loans, %
with state participation, of which:
state banks ex-PrivatBank
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