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The number and volume of problem loans in the banking system are decreasing, but they directly depend on the course of hostilities, military aid from Western partners, and the economic development of the country. This opinion was expressed by Olena Yermolova, director of risk management, member of the board of GLOBUS BANK.

According to her data, starting from the summer of 2022, the volume of problem loans will systematically decrease. At the same time, according to the expert, more than 90% of problem loans are loans that were issued even before the start of the full-scale invasion, and their recipients, for objective reasons, lost the possibility of repayment precisely because of the circumstances of the war.

“There is a direct relationship between the number of bad loans, the circumstances of the war, the volume of loans issued before the full-scale invasion and already after the renewal of lending. However, there is one more important nuance: borrowers from the frontline areas are in a constant risk zone, because the war factor can significantly affect their ability to repay loans on time," said Olena Yermolova.

She reminded that, according to NBU statistics, the share of non-performing loans in the banking system during 9 months of 2022 almost did not change, remaining at the level of 32%, which was explained by the relaxation of NBU requirements for determining loans as non-performing due to a full-scale war. But the real dynamics of the problematic portfolio objectively increased due to military aggression. After all, in March 2022, more than 60% of bank clients did not make mandatory monthly payments. Already after the liberation of Kyiv, Sumy, and Chernihiv regions from Russian troops (in April 2022), the servicing of loans and accumulated debts gradually improved, and the positive dynamics of reducing the number of problem loans continues to this day.

“In February 2022, the National Bank of Ukraine allowed banks for a certain time not to consider problematic loans, on which payments temporarily stopped due to a full-scale invasion, in addition, banks were able to provide borrowers with credit holidays. In 2023, the National Bank not only returned the "pre-war" requirements, but also significantly expanded the list of signs for determining a loan as non-performing. Because of this, statistically, the share of such loans has increased significantly," the expert emphasized.

At the same time, the banker noted that in order to objectively determine the volume of problem loans, it is important to understand the difference between problem and non-performing loans (NPL). Usually, problematic loans are loans that are significantly overdue for debt service (more than 90 days). And according to the normative documents of the National Bank of Ukraine, non-performing loans (NPL) also include a significant part of loans that are serviced on time, do not have payment delays and are likely to be paid by borrowers in accordance with the terms specified in the loan agreements.

"In the second half of 2022, the NBU returned the pre-war requirements for determining non-performing loans, and in October 2023, the NBU  significantly expanded the list of requirements for official reporting of borrowers - legal entities, which led to a statistical increase in the volume of such loans in the banking system at the end of 2022 and in 2023. The regulator's innovations should be taken with understanding, because they are important in view of the gradual reformatting of the Ukrainian market to international practices for determining non-performing loans, in particular, this applies to the standards of the EU banking system," Olena Yermolova explained.

As the specialist pointed out, the share of both non-performing (as defined by the NBU) and problem loans (with payments overdue for more than 90 days) in banks depends on a number of factors, including:

1. Lending dynamics. If the bank has frozen its own loan products, then the valid loan portfolio of "good" loans will gradually decrease and the share of the problem portfolio will increase accordingly.
2. The bank's policy in working with problem loans, namely: in the sale of a portfolio of problem loans, their write-off from the bank's balance sheet. If a financial institution regularly sells overdue loans or writes them off the balance sheet, the percentage of bad loans will decrease, but this will not reflect the actual state of affairs.

In her opinion, currently the most objective indicators of the level and quality of problem loans are those banks that do not sell loan portfolios and do not carry out their write-offs, while developing the entire range of lending with the priority of providing small loans (consumer loans, car loans, mortgage loans, loans for small and medium-sized businesses). It is in such financial institutions that the share of problem loans averages up to 20% of the total loan portfolio, which is quite acceptable in wartime conditions.

She talked about the portfolio of problematic loans of "Globus Bank". In March 2024, the percentage of problem portfolio (overdue payments for more than 90 days) is 13% of the total loan portfolio. Thus, the share of problematic targeted loans granted to small and medium-sized businesses,makes up only 3% of the total number of loans for SMEs, mortgage loans - up to 4% of the total number of mortgage loans granted, and car loans - 16% of the total portfolio of car loans.

“The vast majority of targeted loans for small and medium-sized businesses, which are currently problematic, were granted even before the start of military aggression to enterprises that were in the temporarily occupied territories of Ukraine. Lending to SMEs was renewed in April 2022. This contributed to the fact that the volume of the loan portfolio was preserved. Despite the fact that during the 2 years of the war, borrowers repaid 70% of loans for SMEs, in March 2024 the bank was able to reach the pre-war volume of lending. As for mortgage lending, the rate of issuing mortgage loans over the past two years is significantly lower than the rate of their repayment, which significantly reduces the portfolio of this type of lending. The large percentage of problem car loans can be connected, on the one hand, with a significant decrease in the volume of loans issued, especially in 2022 (currently, the repayment of car loans almost coincides with the rate of issuance of new loans), as well as with a significant number of loans issued even before the start of a full-scale invasion in the territories occupied by the aggressor," detailed Olena Yermolova.

Predicting the situation surrounding problem loans in the banking sector, the expert emphasized that several important factors must coincide for their further reduction:

1. improvement of the economic situation in the country;
2. controlled situation at the front;
3. reduction of the accounting rate as the main indicator of the cost of resources;
4. increasing the financial capabilities of citizens to take and service loans;
5. competition of financial institutions and introduction of bank loan programs that are more loyal to the borrower: increase in the repayment period, decrease in the size of the initial contribution, etc.

“The main caveat for any forecasts is the war factor, because it is too difficult to predict its course and further impact on the economy, social and political circumstances in the country. Despite this, the banking sector expects that the general situation will be more or less favorable not only for the gradual development of bank lending, but also, accordingly, for the reduction of problem loans," Olena Yermolova concluded.