For the first time since the third quarter of 2022, Ukraine’s banks increased their net hryvnia portfolio of business loans, and the increase in consumer loans continued for the second quarter in a row, the National Bank of Ukraine (NBU) said in the review of the banking sector for the third quarter of 2023 .
According to the report, the net hryvnia corporate loan portfolio grew for the fourth month in a row in October after a decline caused by Russia’s full-scale invasion almost two years ago. The share of small and medium-sized enterprises in this portfolio increased to 55%.
The volumes of the net retail hryvnia credit portfolio continued to grow primarily thanks to the recovery of card lending. Also, in the third quarter, the volume of net mortgage loans increased by 18.7% due to the issuance of loans under the "eOselya" program that has breathed some life back into Ukraine’s mortgage market.
“Banks experienced almost no credit losses for the third quarter in a row. The share of non-performing loans decreased due to the write-off of such loans to individuals and the reclassification of certain large corporate loans as non-performing loans,” the NBU said. (chart) (chart)
Retail deposits remain the main source of funding for the mortgage business and have been growing for the fourth quarter in a row. The still attractive deposit rates contributed to the further growth of time deposits of the population in hryvnia, although at an increasingly lower rate after the NBU began to ease its monetary policy thanks to falling inflation.
“Despite the reduction in the discount rate, higher rates on three-month deposit certificates of the National Bank and increased reserve requirements for current funds continued to motivate banks to attract time deposits from the population. Therefore, the reduction of deposit rates due to the reduction of the discount rate occurred slowly,” the NBU said.
Banks' operational efficiency remains high and provisioning costs minimal, so the sector continued to grow profits. Only seven, mostly small, banks were unprofitable for the quarter (15 in the previous quarter), the NBU reports.
Thanks to a comprehensive clean-up of Ukraine’s banking sector, completed before the war started, the banks were already in robust health as the shock of war hit. The sector remains burdened by high NPLs (chart), but those were almost all provisioned for before the war started and have not destabilised the sector as a result. The share of NPLs jumped after the start of the war, but have begun to fall again as the bank sector returns to profit. The cumulative profits this year remain well ahead of the previous five years.
Ukrainian Banks earned UAH110bn ($3bn) in profit in the first nine months of 2023. Solvent banks received UAH109.9bn in net profit for the nine months of the year, compared to UAH7.4bn for the same period last year, the NBU reported. (chart) (chart)
Thanks to what the government have dubbed the “exorbitant profits” Ukrainian commercial banks have booked in 2023 the government is intending to levy a 50% tax on banks, while the tax rate for subsequent years will be set at 25%, Ukraine's Parliamentary Finance Committee chairman Danylo Hetmantsev said in a Telegram post on November 16.
“The preliminary results of this year's assessment of the stability of banks are optimistic: a moderate need for capital may arise in only a few institutions. The existing capital reserve of most banks will be sufficient to comfortably meet the new regulatory requirements, despite the expected introduction of an additional tax on bank profits,” the NBU said in November.
"We have seen a clear trend of business lending recovery," said First Deputy Head of the National Bank Kateryna Rozhkova in a statement in November. "So far, corporate lending is mainly moving thanks to the "5-7-9% Affordable Loans" program. At the same time, some banks from among the major players with foreign capital have demonstrated the growth of the portfolio outside the program. This is a positive signal that market lending is possible even in conditions of full-scale war."