July industrial output up 4.9 percent; GDP decline slows to 18 percent; Foreign investments shrink to $2.3 billion; Ukraine to receive $2 billion more from IMF; World Bank to consider $400 million loan; Bank deposits inch up, lending flat; Bank sector posts $2.4 billion loss.
July industrial output up 4.9 percent
Ukraine’s industrial output rose by 4.9 percent in July compared to June, narrowing its decline in year-on-year terms to 26.7 percent from 27.5 percent the month before. The increase in industrial output was expectedly led by the steel sector and related industries. Metallurgical enterprises boosted production by 15 percent month-on-month in July, providing for a comparable rise in the production of iron ore, coke and electricity. Yet, other major sectors, including food-processing, chemicals and machinery, fared worse, pushing overall industrial production below analysts’ expectations. For comparison, industrial output in Russia decreased an annual 10.8 percent in July (and was up 4.7 percent compared to June). With the steel sector seen continuing its recovery in August-September, domestic industrial production is expected to post further growth in month-on-month terms over the period.
GDP decline slows to 18 percent
According to provisional estimates released by the State Statistics Committee, Ukraine’s gross domestic product declined by 18 percent year-on-year in real terms in April-June, improving somewhat from the first quarter’s 20.3 percent year-on-year drop. The committee did not release any other details, saying only its report on second-quarter GDP would be published by end-September. Ukraine, which reported the worst economic decline in Europe in the first quarter of 2009, appeared third on this measure in April-June after Lithuania and Latvia, whose economies shrank by 22.6 percent and 18.2 percent over the period. Russia’s economy contracted an annual 10.9 percent in the second quarter.
Foreign investments shrink to $2.3 billion
Net foreign direct investments (FDI) in Ukraine totaled $2.3 billion in the first half of 2008, plummeting by 66 percent compared to the same period in 2008. About a third of total investments, or $0.9 billion, went to the financial sector, consisting mostly of funds provided by foreign banks to support their local subsidiaries. Industrial enterprises, particularly in the chemical and food-processing industries, were responsible for another 20 percent of total investment inflows. FDI flows to the domestic banking sector are set to decelerate in the second half of 2009 as most foreign-owned banks have already brought their capital in line with NBU requirements. However, the government’s recent privatization drive, including the planned sale of the Odesa Portside Plant on September 28, should provide for additional FDI inflows.
Ukraine to receive $2 billion more from IMF
The National Bank of Ukraine’s foreign reserves will increase by almost $2 billion by mid-September as a result of the International Monetary Fund’s program to distribute $283 billion worth of Special Drawing Rights (SDRs) – the Fund’s reserve asset – among Fund member countries. The allocations for Ukraine will be made in two tranches of $1.6 billion on August 28 and $0.4 billion on September 9. The country’s foreign reserves stood at $29.6 billion as of end-July.
World Bank to consider $400 million loan
The World Bank on September 17 will consider a $400 million loan for Ukraine, the first tranche of the Bank’s $750m financial sector rehabilitation program. The program is designed to help the government recapitalize troubled banks, compensating depositors and covering fiscal costs associated with bank liquidation and restructuring.
Bank deposits inch up, lending flat
Deposits at commercial banks rose by a tiny 0.3 percent to Hr 318 billion in July, remaining 11 percent lower than at the beginning of the year, while the volume of outstanding bank loans remained virtually unchanged at Hr 715 billion (down 2.6 percent year-to-date). Last month signaled a shift in the currency composition of bank deposits, with hryvnia accounts declining by Hr 3.3 billion and foreign-currency deposits rising by Hr 4.2 billion. The change was particularly vivid in the retail segment, reflecting increased currency devaluation expectations among households. Conversely, the volume of foreign-currency loans continued to decline in July due to regulatory restrictions. Still, in the total lending portfolio, non-hryvnia loans accounted for 53 percent as of end-July.
Bank sector posts $2.4 billion loss
The Ukrainian banking sector posted a net loss of Hr 18.4 billion in January-July as banks continued to beef up their reserves intended to offset losses on bad loans. The sector as a whole reported an operating profit of Hr 22.8 billion over the period (up 71 percent year-on-year) while increasing loan loss provisions to Hr 41.4 billion, up eight-fold year-on-year, with Hr 8.2 billion earmarked to cover non-performing loans in July alone. Non-performing loans currently account for an estimated 15-18 percent of the Ukrainian banking sector’s loan portfolio and keep growing, their peak rate of 22-25 percent expected in mid-2010. For example, Raiffeisen Bank Aval and Forum Bank reported recently the share of bad loans in their respective loan portfolios had stood at 18 percent as of end-June.
