In Jan-Jul, the banking system generated a net profit of UAH 1.864bn (USD 238mn), the National Bank of Ukraine (NBU) has announced.

Banks' revenues grew by 8.9% y/y to UAH 92.8bn, expenses rose by 9.6% y/y to UAH 90.9bn. This includes UAH 72.97bn of the banks' income yield for the seven months, UAH 13.66bn of fee revenues, and UAH 2.62bn of other operating revenues. The banks' interest costs for the mentioned period were UAH 45.38bn, commission expenses - UAH 2.21bn, other operating expenses - UAH 5.40bn, general administrative expenses - UAH 22.33bn, and provision for reserves - UAH 14.58bn.

Thus, given that banks earned UAH 1.181mn of profit in Jan-Jul, for July their profit was UAH 683mn. The banking system generated a net profit of UAH 1.18bn, down by 24.2% y/y in H1.

In its latest report on Ukraine’s banking system, Moody’s kept its negative outlook, unchanged since October 2009. The outlook reflects the rating agency's expectation that Ukrainian banks will continue to operate in a challenging economic environment, causing asset quality to remain very weak. This outlook also takes into account Moody's expectation of poor profitability and tighter funding conditions in 2013.

According to the agency, over the 12-18 month outlook period, the operating environment for Ukrainian banks will remain negative with the economy expected to show very little growth. Thus, the agency expects Ukrainian banks' asset quality to remain very weak in the near future. Problem loans will remain at the 2012 level of around 35% of gross loans in 2013, driven primarily by weak export prices and stagnant real-estate prices. In addition, provisions for loans covered only around 40% of total problem loans (including restructured) at year-end 2012, which Moody's believes is insufficient to cover potential credit losses.

The agency expects banks to be marginally profitable in 2013 as their earnings will be affected by increased loan loss provisioning, shrinking margins and limited cost-cutting ability. Net interest margins declined to 4.5% in 2012 from 5.3% in 2011, and Moody’s forecasts the negative trend to persist in 2013.