Financial sector news

Ukrainian banks forecast growth in lending to businesses and households over the next 12 months, for the first time since the start of a full-scale war, and expect to improve the quality of their loan portfolios, the National Bank of Ukraine reports.

According to the quarterly survey of banks on lending conditions conducted by the National Bank of Ukraine, in the first quarter of 2024, there was an improvement in assessments of key lending indicators. Demand increased for both corporate and retail loans.

Growth in demand for loans

The greatest interest from businesses is observed in loans for small and medium-sized businesses (SMEs), long-term and hryvnia loans. Demand is being driven by the need for working capital, capital investments, and debt restructuring, as well as lower interest rates for SMEs. Financial institutions expect demand for all types of business loans to increase further in the second quarter.

Households' demand for loans is being driven by better consumer sentiment. In addition, the banks that reported an increase in demand for mortgages cited better real estate market prospects and a reduction in lending by other banks as additional factors. In the future, banks expect household demand for consumer loans to grow, while demand for mortgages will remain unchanged.

Changes in credit standards

The debt burden of businesses is assessed as medium, and that of households as low. Financial institutions have raised their corporate lending standards, most
most significantly for loans to large enterprises, foreign currency and long-term loans. In the second quarter, banks plan to ease lending standards for SMEs and short-term loans, and tighten them for large enterprises and foreign currency loans.

The approval rate for business loan applications declined overall for the first time in 12 months, primarily due to a decline in the number of applications for large enterprise loans, as well as for foreign currency and long-term loans. On the other hand, the approval rate for SME loan applications has been rising for the fourth quarter in a row.

Banks tightened lending standards for mortgages, while continuing to ease standards for consumer loans for the fifth consecutive quarter. In the second quarter, banks plan to ease credit standards for households, mainly for mortgages.

Risk assessment

Financial institutions reported an increase in credit risk and, to some extent, in foreign exchange risk. Changes in other risks were not significant. In the second quarter, respondents expect an increase in interest rate and credit risks.

Overall, the survey suggests that the Ukrainian banking sector expects lending to pick up in the coming months, despite the risks associated with the war.