Ukraine’s banking system puts the worst of the war shock behind it as sector goes back into profit

Ukraine’s banking system puts the worst of the war shock behind it as sector goes back into profit
Both the return on assets and equity dropped to below zero in March and April, before returning to around zero in May. / bne IntelliNews
By bne IntelliNews July 7, 2022

Ukraine’s banking sector is holding steady in the midst of the war-storm sweeping the country and returned to profit in May after losing money in the first two months of the war, according to the National Bank of Ukraine (NBU).

The country’s banks were looking forward to a bumper year in 2022 after profits rose to their highest levels since the Euromaidan revolution in 2014 (chart).

Banks started the year with a monthly profit of UAH7,145mn, but the rising tension on the Russian border, where troops were building up, already depressed profits in February and then went into an outright loss of UAH10,069mn in March after the invasion started. Profits remained negative in April, but they bounced back in May as Russia moved to its Phase 2 in the war and concentrated all its forces in the Donbas. Ukraine’s banks made a profit of UAH6,116mn in May, on a par with their profits in May a year earlier and twice the amount banks earned that month in 2020 (chart).

The bounce back in May went a long way to erasing the cumulative losses from the loss-making March and April, but the sector remains mildly in the red at the end of May having lost a cumulative UAH1,310mn year to date.

Nevertheless, both the return on assets and equity dropped to below zero in March and April, before returning to around zero in May (chart).

Despite the fall in profitability and the uncertainties caused by the war, non-performing loans (NPLs) have continued to fall. The sector average NPL has fallen to 27.6% in May, down by more than 10pp from a year earlier and 20pp from the same month two years earlier.

The now state-owned PrivatBank, which was nationalised in 2016 after nearly going bust, remains the problem child in the family but here too NPLs have fallen from nearly 80% of its loan book in 2020 to 68.3% as of May this year. Foreign-owned banks are doing best, with NPLs down to almost normal levels of 7.4% in May, and privately owned Ukrainian banks are just behind with 12.4%. The state-owned banks are on a par with the sector average with 27.6% of their loan book in distress, but even here enormous progress has been made, as the NPL ratio was just over 50% two years ago.

NPLs % of loan book


May 20

May 21

May 22

ratio of non-performing loans, %




incl. banks:


with state participation, of which:








state banks ex-PrivatBank




Foreign owned




Privately owned








Source: NBU



Credit business coming back to life

The NBU said that Ukrainian banks no longer need refinancing from the regulator in June and is mulling loosening some of its controls as the economic situation stabilises.

Nevertheless, banks remain under pressure as the cost of NBU refinancing jumped after the regulator more than doubled rates to a whopping 25% on June 2 to rein in inflation and shore up the currency.

A refinancing rate of 27% applies to all new loans and some existing loans. The rise in the cost of refinancing hurts banks that might consider using these tools in the future. This increases the cost of refinancing those loans with a floating rate, which was not fixed due to interest rate swaps with the NBU.

With some semblance of normality returning to large parts of the country the lending business has remained remarkably stable, but overall both retail and corporate borrowing declined in March after the war started (chart).

The slowdown in loans is due to the dislocation in business activity that clearly started in March. The NBU estimates that the economy will contract by some 35% this year, which will keep the banking business subdued. In general corporate loans remain below the level of previous years (chart), whereas retail loans are well ahead (chart).


Individually the leading banks are starting to come back to life. The Soviet-era savings bank, state-owned Oschadbank, said in June it will start accepting applications for new business grants in July. Beginning July 1, the state savings bank will begin accepting applications from Ukrainians for micro-grants of up to UAH250,000 ($85,000) for a new business or the development of an existing business.

According to a government decision, Oschadbank has become the authorised bank of the new state program eRobota (e-Work), which will provide Ukrainians with grants of up to UAH250,000 for starting a new or developing an existing business. Any individual Ukrainian or legal entity can become a participant in the programme.

With a state grant in the amount of up to UAH250,000, an entrepreneur or legal entity will be able to purchase equipment, pay for raw materials and equipment, and make a partial rent payment. In cases where one or two jobs are created for more than three years and the business pays taxes during this period, the grant does not need to be paid back.

The NBU has also been trying to stimulate trade by increasing the credit period on export-import operation from 90 to 120 days from June 8.

And looking forward to after the war, Kyiv is planning to set up its own bank for reconstruction and development. The international financial institutions (IFIs) and multilateral development banks (MDBs) are all already present in Ukraine – and the European Bank for Reconstruction and Development (EBRD) is already actively making loans to key services and infrastructure functioning – but Bankova wants its own development bank as part of its general reconstruction plan. The new development bank may be based on one of the existing state-owned banks.

"The Ukrainian bank will be an analogue of German KfW, a bank that was created for reconstruction after the Second World War, through which funds were channelled into the German economy,” head of the Tax Committee Danylo Hetmantsev told UNIAN. Such a bank will be able to lend to entities during times of increased risks and allow entrepreneurs to develop and grow.


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