Banking sector boosted its net income in January by 92 percent year-on-year, Fitch downgrades Ukraine, merchandise trade deficit halved in December, Austrians urge the European Union to help Ukraine, itself on a downward spiral amid bleak global forecast
According to preliminary National Bank of Ukraine data, the Ukrainian banking sector boosted its net income in January by 92 percent year-on-year to Hr 2.5 billion. However, January profitability numbers can hardly be indicative of full-year performance as banks will have to create substantial reserves during the year to offset expected loan losses.
The sector is expected to record a loss already in the first quarter and remain loss-making for the rest of 2009. Bank assets declined by 2 percent last month to Hr 906 billion, with corporate loans down 1percent to Hr 454 billion and retail loans down 2 percent to Hr 269 billion. Banks’ deposit base also continued to shrink, with corporate deposits down 6 percent to Hr 134 billion and retail deposits down 5 percent to Hr 205 billion in January.
The rating agency Fitch has downgraded Ukraine’s long-term foreign and local currency ratings to B from B+ and affirmed the short-term foreign currency rating at B, citing the negative impact of banking and currency crises and risks to the resumption of International Monetary Fund lending. Fitch said the National Bank of Ukraine’s end-January reserves of $28.8 billion made the government capable of servicing $1.6 billion of public debt falling due this year.
The agency expressed concern, however, that “willingness to pay may be eroded by a full financial crisis”. Separately, another global rating agency, Standard & Poor’s, has put Ukraine’s sovereign rating under review for potential downgrade. According to S&P, it will decide on Ukraine ratings in the next two weeks depending on the government’s response to agency questions regarding cooperation with the IMF.
Ukraine’s merchandise trade deficit halved in December to $0.8 billion, bringing the full-year trade gap to $18.5 billion (10.4 percent of gross domestic product). Merchandise exports advanced by 9.2 percent month-on-month in December, recovering partly from a 34 percent drop in November, as steel and machinery exports expanded by 35 percent and 22 percent, respectively. At the same time, imports declined by 9.3 percent mont-on-month (following a 31 percent drop in November), pulled down by a 30 percent month-on-month slump in imports of fuels and minerals.
Full-year exports thus increased by 36 percent year-on-year to $67 billion, while imports rose by 41 percent year-on-year to $86 billion. Ukraine’s trade flows are set to dwindle in 2009, with exports forecast to decline by 47 percent year-on-year to $36 billion and imports to halve to $42 billion.
Austrian finance minister Josef Pröll, on a visit to Kyiv on Feb. 12, urged the European Union to help Ukraine out of its current economic difficulties given the country’s strategic importance and close ties with the union. Pröll said such assistance was needed as a deep economic crisis in Ukraine could trigger a “domino effect” across the EU. Pröll’s comments are the latest in a series of statements by high-level EU officials that the union had to support more financially vulnerable eastern European states to avoid wider ramifications of the current financial turmoil. In the case of Ukraine, the EU’s diplomatic support should be conducive to quicker resumption of talks with the IMF.
On a separate note, Pröll said the Austrian government’s EUR 100 billion banking support package was intended to ensure the country’s banks that have branches in Eastern Europe continued operating there without restriction. The statement is definitely positive for Raiffeisen Bank Aval and Ukrsotsbank, the latter owned by Italy’s UniCredit Group via Bank Austria. Other Ukrainian subsidiaries of Austrian banks include Erste Bank Ukraine and Volksbank Ukraine.
The Ukrainian economy has been on a steep downward trend since November, hit by the global downturn, depressed bank lending and capital outflows. Industrial output plummeted by 27 percent year-on-year in December, slightly better than November’s 29 percent year-on-year slump, bringing full-year industrial production down 3.1 percent year-on-year. Weak industrial performance adversely affected related service sectors (trade, transportation), squeezing full-year GDP growth to 2.1 percent year-on-year.
Similarly to other emerging markets burdened by high foreign-currency debts, Ukraine is currently not in a position to provide any substantial fiscal stimulus to its economy as long as its foreign exchange market remains volatile, and therefore has to depend on a global turnaround.
The global eocnomic outlook has deteriorated in recent months; advanced economies could contract by 2 percent this year, the IMF said.
