The volume of non-performing loans (NPLs) in the Ukrainian banking sector fell below 50% for the first time in recent years coming in at 49.3% as of September 1, the National Bank of Ukraine (NBU) said in a statement this week.

In January-August, the NPLs level decreased by 3.6 percentage points (pp). While the banking sector has returned to making healthy profits and the bad debt is provisioned for, the sector has been struggling to shrug off the NPL burden on bank’s balance sheets.

The level of non-performing loans (NPL) in Ukraine's state-owned banks decreased by 2.5 percentage points, to 65% in January-June, according to the nation's Finance Ministry.

The NPLs volume reduced by UAH22bn, to UAH415bn during this period, according to the ministry. The share of the NPL of the banking system as of July 1 stood at 51%.

Rapid development of consumer lending reduced the non-performing loans portfolio of Ukrainian banks in October-December 2018 by 1.7 percentage points (pp) to 52.8% in late 2018, the National Bank of Ukraine (NBU) said in its February's banking sector review.

The high NPL rate remains a major challenge for the Ukrainian banking sector, particularly, in state-owned banks, and was caused by the financial and economic crisis of 2014-2016. In 2018, the NBU urged bankers to step up their efforts to workout NPLs.

Over the past two years, the NPL share in five largest foreign banks has reduced by 2.7 times, to 13.9%. However, state-owned banks and banks with Russian capital have reported no progress in reducing nonperforming loans while accounting for 83% of the total NPLs, the review reads.

Since the beginning of 2019, the new rule has been applied for depreciation of collateral for loans remaining nonperforming for over two years. "Complete depreciation of collateral for the loans during the next two years will result in complete coverage of nonperforming loans with prudential provisioning," the central bank added.