bne IntelliNews – Profitability of the Ukrainian banking sector improved in April, but remains below its level of early 2020

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The profitability of the Ukrainian banking sector continued to improve in April, following strong results in March, as the sector recovers along with the economy.

Thanks to the clean-up of the sector by the NBU in recent years, the Ukrainian banking sector has withstood the coronacrisis remarkably well. The sector had experienced strong growth in early 2020 and was on track to record its best results in the years when multiple shocks hit in March and April. Although this hit profits and took them below 2019 levels, after a few early collywobbles, the sector continued to increase profits throughout the year, albeit to lower levels than in 2019. .

The industry has started well this year, but based on cumulative profits it is still tracking 2019 results and has not returned to the potentially strong growth it was showing at the start of 2020.

However, year-over-year comparisons are made confusing by the exceptionally strong months banks spent in January and February of last year, when profits were high and almost double that of the year. previous respectively.

But as the year unfolds, banks appear to be returning to the strong growth they enjoyed in 2020. In March, the NBU reported that almost all segments of the financial sector had recorded significant profits, and some had incurred losses due to the establishment of bad debt reserves.

Based on cumulative profits since the start of the year, banks earned 17,538 million UAH ($ 634 million) in April, which was lower than the 25,208 million UAH the industry earned in the same month. a year earlier and tied with 18,115 million UAH. The banks had won in April 2019. Bank profits in 2017 and 2018 were half as high as the economy was still suffering aftershocks from the near-complete economic collapse that followed the Dignity Revolution in 2014.

On a monthly basis, banks earned 6,603 million UAH ($ 239 million) in April, which was also down from the 9,234 million UAH the industry had earned in the same month a year earlier. , but ahead of the 5,213 million UAH of 2019 and way ahead of previous years.

On a monthly basis, Ukrainian banks have been lagging behind the 2020 results every month since the start of this year, but they will almost certainly outperform previous performance as they enter the period of pandemic crisis.

A better benchmark for this year’s performance is 2019, and so far the industry has followed this year very closely since February and largely outperformed it in April y / y.

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

Loans, deposits and non-performing loans

Bank assets continue to climb steadily and the sector is sufficiently funded by rising deposits; Assets reached 1.8 trillion UAH ($ 67.4 billion) in April of this year, up from 1.5 trillion UAH in January 2020 and 1.3 trillion UAH in January 2019.

Bankers are optimistic about the lending outlook for the next 12 months, according to the NBU’s quarterly survey. Of the credit managers surveyed, 78% expect an increase in the business loan portfolio, 82% expect an increase in lending to households the highest rates since 2015. Carried out on April 9, the survey questioned the credit managers of 23 banks. These banks represent 88% of the assets of the banking system.

Business loans remain disappointing, with 792,320 million UAH ($ 28.6 billion) granted to businesses in April. And personal loans have slowed in recent months, but showed signs of recovery in April as consumer sentiment clearly improved on the back of the economic recovery. Banks made 215,292 million UAH ($ 7.8 billion) to retail customers in April, which is monthly retail loans for at least a year. The current recovery is not, for the moment, financed by a boom in retail credit.

Finally, the return to profitability has allowed banks to withdraw nonperforming loans (NPL), where the situation continues to improve, although it will take at least three more years for foreign and private banks to bring the NPL ratio down. at normal levels and much longer for public banks.

The main problem for the industry is the extremely high NPL ratio of the now state-owned PrivatBank due to what management calls “fraudulent loans” from previous owners, which stands at 72.5 %, but which also decrease regularly.

NPLs% of credit book

Apr 19

Apr 20

Apr 21

non-performing loan ratio,%

51.68

48.92

39.93

incl. banks:

with the participation of the State, including:

65.21

64.7

56.36

PrivatBank

82.36

78.66

72.54

state-owned banks ex-PrivatBank

50.59

51.73

43.09

Foreign ownership

39.18

33.27

27.28

Private property

21.75

18.59

13.17

Insolvent

53.12

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Source: NBU

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