Ukraine's banks made almost a third less profit in the first half of 2026 than a year earlier, as the wartime windfall that fattened their margins begins to fade.

The banking system's net profit fell 32% year on year to UAH54.07bn ($1.3bn) in 1H26, according to National Bank of Ukraine (NBU) data compiled by Interfax-Ukraine, with 11 of the country's 59 banks ending the half in the red.

The fall marks a turn after several years in which Ukraine's lenders, improbably, kept posting record profits through the fighting. A central-bank rate held high to fight wartime inflation, together with generous yields on government bonds, handed banks an easy earner; as the NBU's rate stops rising and that windfall thins, profitability is normalising even as the war grinds into its fifth year.

The strain is not new to the regulator. The NBU has warned that administrative costs are climbing and that loan-loss provisions “have gradually returned to levels seen before the war”, while a heavier tax take has thinned the capital banks can build to keep lending.

PrivatBank still carries the system

The concentration is extreme. State-owned PrivatBank, Ukraine's largest lender by assets and nationalised in 2016, alone earned UAH24.56bn ($590mn) in the half — down 29.6% on a year earlier, yet still equal to 45.4% of the entire system's profit. The bank remains the country's biggest holder of bad debt and the subject of a long legal saga: its former owner Ihor Kolomoisky is now set to stand trial over a UAH9.2bn ($220mn) fraud scheme tied to the lender.

Behind it the order reshuffled. Universal Bank, which runs the monobank digital platform, lifted profit 36.3% to UAH3.85bn ($93mn) to take second place, ahead of Austria's Raiffeisen Bank on UAH3.57bn (down 24.7%). State-owned Oschadbank, second a year ago, slid to fourth on UAH3.38bn — some 2.9 times less than in 1H25 — with PUMB, also known as FUIB, fifth on UAH3.12bn and state export-import lender Ukreximbank sixth on UAH2.24bn, down 46.9%. Foreign-owned OTP Bank, UkrSibbank, Citibank and Credit Agricole filled the places below.

Between them the top 10 banks generate roughly 80% of sector income, and state-controlled lenders still hold about 54% of banking assets. A year ago the same PrivatBank-led top tier grew combined revenue 14%, flattered by an income-tax bill that had halved as a share of pre-tax profit — a prop that is now being kicked away.

The longest lending boom in 15 years

If profits are cooling, credit is not. Hryvnia lending to businesses has grown at an annual rate of around 30% for more than a year, the longest sustained corporate-credit expansion in 15 years, the NBU says, with loan-rejection rates at their lowest in a decade. Corporate lending rose 36% in 2025 and retail credit 34%, record hryvnia business lending pushing loan penetration up to 8.7% of GDP.

Much of the money is going where the war demands it. Loans and guarantees to the defence industry exceeded UAH60bn ($1.5bn) in 2025, with 23 banks representing three-quarters of system assets signing a memorandum to widen credit to arms makers, and further lending flowing to energy reconstruction and agriculture. Deposits, meanwhile, have climbed to a record UAH3.2tn ($72bn), though households increasingly park cash in current accounts rather than lock it into term deposits.

Bad loans start to tick up again

The credit boom has, for now, come with falling arrears. The share of non-performing loans dropped to around 14% by early 2026, its lowest in more than 15 years and far below the wartime peak, after a steady decline from a decade high led by the state banks that hold most of the bad debt — PrivatBank's own NPL ratio had fallen to 51.4%.

The direction of travel is starting to reverse. Provisions are creeping back to pre-war norms, and a Vienna Initiative study has flagged early warning signs of stress in small-business and household credit across emerging Europe. In Ukraine the squeeze is already visible on the ground, with a survey finding one in three small firms fears closure as costs surge — the kind of borrower whose troubles land on bank balance sheets next.

Rate and bond windfall thins

The engine of the profit boom sat at the central bank. The NBU held its key rate at 15%, a level it expects to keep into early 2027, and the hawkish stance kept borrowing costs — and bank margins — elevated. Just as lucrative were domestic government bonds: commercial banks hold the largest slice of the UAH2.08tn ($47.6bn) of OVDP in circulation, paper yielding well over 15% that turned the state's wartime borrowing into a near-risk-free annuity for its lenders. As inflation eases and the rate peaks, that spread is narrowing.

Easing controls, a sector up for sale

The plumbing is loosening too. From September 1 the NBU will let banks widen their open foreign-currency position by 10% a month, part of a gradual unwinding of the capital and FX controls imposed when the hryvnia's fixed peg was abandoned in 2023; the regulator also raised corporate card limits abroad and eased other restrictions in August.

Consolidation is picking off the weakest. The NBU declared RwS Bank insolvent in November 2025 after months of risky operations, spinning its assets into a transitional lender that Estonia's Iute Group agreed to buy; Motor-Bank and PIN Bank were later ruled insolvent too. At the other end of the market the state is preparing to sell: officials have floated a PrivatBank IPO and the privatisation of Ukrgasbank and Sense Bank in 2026-27, a step Ukraine has committed to under its IMF programme to cut the state's majority grip on the sector, with European banking groups already circling.

Resilient, but still at war

The backdrop to all of it is the fighting. Russia's renewed campaign against Ukraine's energy grid and Black Sea ports keeps destroying the collateral and cash flows that banks lend against; a fresh maritime blockade alone has cost more than $2bn in lost exports, the NBU says. For four years Ukraine's banks have absorbed that and still turned a profit. The 1H26 numbers show the easy part of that story ending: with the rate-and-bond windfall fading, the tax break gone and arrears bottoming out, the question is how a system still leaning on one state-owned giant performs once the wartime tailwinds have blown through.