Ukraine’s banking sector profitability continued to improve in April following strong results in March as the sector recovers along with the economy.  

Thanks to the NBU clean-up of the sector in recent years, Ukraine’s banking sector has weathered the coronacrisis remarkably well. The sector had been growing strongly at the start of 2020 and was on track to record its best results in years when the multiple shocks hit in March and April. While that hit profits and knocked them to below the 2019 levels, after some initial collywobbles the sector continued to increase profits throughout the rest of the year, albeit at lower levels than in 2019.  

The sector got off to a good start this year, but on a cumulative profit basis is still tracking the results of 2019 and hasn't returned to the potentially strong growth it was displaying at the start of 2020.  

However, year-on-year comparisons are made confusing by the exceptionally strong months banks put in during January and February last year, where profits were strong and almost double those of the previous year respectively.

But as the year unfolds the banks seems to be returning to the strong growth they were enjoying in 2020. In March the NBU reported that almost all segments of the financial sector recorded significant, and some posted record, profits, except for credit unions that suffered losses due to the formation of reserves for credit losses.

On a cumulative profit year-to-date basis banks had earned UAH17,538mn ($634mn) in April, which was less than the outstanding UAH25,208mn the sector earned the same month a year earlier and on a par with the UAH18,115mn banks had earned by April in 2019.  Profits of banks in 2017 and 2018 were half as much, as the economy was still suffering from the aftershocks of the almost complete economic collapse that came with the Revolution of Dignity in 2014.  

On a month-on-month basis banks earned UAH6,603mn ($239mn) in April, which was also down on the UAH9,234mn the sector earned in the same month a year earlier, but ahead of the UAH5,213mn from 2019 and well ahead of the years before that.

On a monthly basis Ukraine’s banks have been running behind the results of 2020 in every month since the start of this year, but they will almost certainly overtake the previous performance as they enter the pandemic crisis period.  

A better benchmark for this year’s performance is 2019, and so far the sector has been tracking that year very closely since February and comfortably outperforming it in April y/y.  

Given that the other factors in the sector continue to improve, the outlook for sector is positive for this year.  

Loans, Deposits & NPLs

The assets of banks continue to climb steadily and the sector is adequately funded by the rising deposits; assets reached UAH1.8 trillion ($67.4bn) in April this year, up from UAH1.5 trillion in January 2020 and UAH1.3 trillion in January 2019. 

Bankers are optimistic about lending prospects for the next 12 months, according to the NBU’s quarterly survey. Of credit managers polled, 78% predict an increase in the loan portfolio of corporations, 82% predicted an increase in loans to households – the highest rates since 2015. Completed on April 9, the survey polled credit managers of 23 banks. These banks represent 88% of the banking system’s assets. 

Corporate lending remains underwhelming, with UAH792,320mn ($28.6bn) extended to corporate in April. And retail lending has slowed in recently months, but showed signs of picking up again in April as the mood amongst consumers is clearly brightening on the back of the economic recovery. Banks extended UAH215,292mn ($7.8bn) to retail customers in April, which is in the range of monthly retail lending for at least a year. The current recovery is not, for the moment, being funded by a boom in retail credits.

Finally, the return to profitability has been allowing banks to retire non-performing loans (NPLs), where the situation continues to improve, although it will take at least three more years for foreign- and privately owned banks to bring the NPL ratio down to normal levels and much longer for the state-owned banks.

The main problem in the sector is the extremely high NPL ratio at now state-owned PrivatBank, due to what management calls the “fraud loans” made by the previous owners that stand at 72.5%, but are also falling steadily.

 

NPLs % of loan book
	Apr 19	Apr 20	Apr 21
ratio of non-performing loans, %	51.68	48.92	39.93
incl. banks:
with state participation, of which:	65.21	64.7	56.36
PrivatBank	82.36	78.66	72.54
state banks ex-PrivatBank	50.59	51.73	43.09
Foreign owned	39.18	33.27	27.28
Privately owned	21.75	18.59	13.17
Insolvent	53.12	0	0
Source: NBU

 

 

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