Ukraine’s banking sector has not withered under the strain of the economic crisis.
Reports from the National Bank of Ukraine showed that the banks collectively reported a net profit of $1.5 billion in 2020, and almost $400 million in the first quarter of 2021.
Today 66 banks (out of 73) generate profit. The profits are 30% lower year over year, but it is still a good result given the crisis, Konstantin Fastovets, economic expert for investment company Adamant Capital, told the Kyiv Post.
“2020 was actually not a bad year for banking,” he concluded.
Turbulent year
Banks’ profits dropped mostly due to non-performing loans in state-owned banks.
At the beginning of 2021, 41% of the loans were non-performing.
The NBU’s goal is to clean up non-performing loans and reach a 20% nationwide ratio by 2025. The most immediate challenge, however, is to mitigate the delayed effect of the COVID-19 crisis.
The NBU will especially focus on the effects of the recurrent lockdowns on the Ukrainian economy, the central bank’s governor Kyrylo Shevchenko has recently said in an interview with news website Global Capital.
Because of the crisis, the country faced growing inflation. As it jumped to 8.5% in March, the NBU was forced to raise the key policy rate from 6.5% to 7.5% in a bid to slow down the rise in prices.
Shevchenko said that the central bank will now face two potential directions for its monetary policy: If inflation continues to rise, it will use “tightening tools,” meaning increasing the interest rate to slow down the prices; if inflation stops, the interest rate may go down.
The increase in the cost of loans provided by the NBU to commercial banks affects the rate at which the banks give loans to their debtors.
The higher the rates, the fewer people seek loans, which can slow down consumption in the country.
Shevchenko also said that credit risks would be an issue for the banking sector in 2021.
“Some bank borrowers are still experiencing financial difficulties,” he said. This may affect the quality of loan servicing, forcing banks to make additional provisions.
The NBU also plans to put in place stress tests to check on the bank’s resilience to get a better sense of the risks facing the banking sector in 2021.
Selling state banks
The NBU plans to reduce the state’s share in the banking market from 55% to 25% over the next five years.
Right now, the four largest banks are state-owned: PrivatBank, OschadBank, Ukreximbank and Ukrgasbank.
In the ranking of the most reliable banks in Ukraine, according to financial analyst Minfin, the state banks aren’t in the lead.
The top three banks are the ones with foreign capital: Raiffeisen Bank Aval from Austria, Credit Agricole Bank from France and OTP Bank from Hungary.
The NBU has recently said it wanted to sell PrivatBank, Ukraine’s largest bank, to international investors, such as those from the United States and the European Union.
The announcement raised many eyebrows: PrivatBank, which holds 20% of the Ukrainian banking market, has a troubled history.
PrivatBank was nationalized in 2016 when it was found to have a $5.5 billion hole in its ledger. The money was allegedly siphoned by its former owners Ihor Kolomoisky and Gennadiy Bogolyubov. They deny any wrongdoing. Taxpayers paid to get the bank back on its feet.
Now state-owned, PrivatBank has been engulfed in endless trials against Kolomoisky since 2016. Overall, there have been around 500 lawsuits against PrivatBank since it was nationalized; over 100 are still active, which makes it an even tougher sell.
