Financial sector news

The Ukrainian banking sector demonstrated resilience and dynamic development during the first quarter of 2024, according to the Banking Sector Review  released by the National Bank of Ukraine (NBU). 

Lending growth without government programs

One of the key trends is the intensification of lending to businesses without the involvement of government programs. Over the past three quarters, the net hryvnia loan portfolio of businesses grew by 2.9%, and the annual growth rate of hryvnia loans to SMEs accelerated to 15.9%.

The share of loans under the “Affordable Loans 5-7-9%” program in the first quarter decreased to one third of the hryvnia gross working portfolio. Instead, lending outside this program is growing dynamically: 40% of new loans to state-owned banks, over 50% to private banks, and about 70% to foreign banks.

Improved loan portfolio quality

The quality of the loan portfolio is also improving: the annualized default rate in March decreased by 0.3 percentage points compared to December 2023, and the share of non-performing loans declined slightly in all groups of banks.

High profitability and capitalization

Maintaining high operating efficiency helped banks to generate UAH 40.5 billion in profit for the first quarter. The sector's return on equity was about 50%, including taxation at the 25% tax rate increased last year.

Readiness to comply with EU regulations

Thanks to its strong financial position and high profitability, Ukraine's banking sector is ready to meet the requirements of the European Union. Starting from August 2024, new requirements to the capital structure and capital adequacy ratios will come into effect, for which banks will be granted a transitional period.

NBU Governor Andriy Pyshny commented

NBU Governor Andriy Pyshnyi drew three key conclusions from the Review:

Media speculation about “record outflows” from banks did not materialize. During the first three months of 2024, the amount of hryvnia deposits of individuals and legal entities in banks recovered to the level of the beginning of the year, and as of today exceeds this figure by almost 2%.

Lending is becoming even more market-based. Hryvnia loans to businesses have been growing for the third quarter in a row, and the share of loans under the 5-7-9% program has fallen to one third of the gross operating hryvnia portfolio.

The banks are operationally profitable and have sufficient capital reserves. This allows them to remain resilient in the face of war and build ambitious plans to expand lending.

“The system is firmly on its feet and has enough resources and expertise to support economic recovery. And it is already doing so,” said Andriy Pyshnyi.

The NBU governor said that the regulator plans to finalize the Lending Development Strategy, which provides for focusing state support on the defense industry, critical energy infrastructure, processing industry, and businesses in the frontline territories.

“Lending without state support will also grow, in particular due to the planned measures to strengthen the protection of creditors' rights and improve the financial literacy of households and entrepreneurs,” summarized the NBU Governor.