The financial sector is actively discussing the NBU’s review, which notes steady growth in lending for the second consecutive year. At the same time, some experts have expressed cautious assessments of both the growth rate and its structure. The arguments vary, but the main point boils down to comparisons with the period prior to 2014.
To assess current indicators, one must recall what the banking system was like before the major reform began.
Why simple arithmetic does not explain the situation
Prior to 2014, Ukraine’s banking sector required a systemic overhaul of regulatory approaches and a strengthening of supervisory mechanisms, as the banking system is the foundation of the economy and its long-term growth. Following the Revolution of Dignity, a large-scale reform began, aimed at increasing the stability, transparency, and trust in the financial sector, which became a strategic prerequisite for its further development.
Why, then, is it incorrect to compare current figures with those from 2013 solely due to currency conversion? In hryvnia terms, lending volumes already exceed pre-crisis levels, yet critics point to the exchange rate difference: 8 hryvnias per dollar back then versus over 40 today. This approach considers only nominal arithmetic but ignores the quality of the loan portfolio.
It was precisely the issues surrounding corporate governance, insider lending, and lending to related parties that prompted the reforms following 2014. At that time, the risk-based approach was not properly implemented, leading to the accumulation of a significant volume of non-performing loans.
Today, lending takes place under stricter requirements for capital, risk assessment, and provisioning. Therefore, a direct comparison of volumes without accounting for the system’s transformation distorts reality.
2022 as a Real Test of the System
If we are to speak of proof of this transformation, 2022 provided it. A full-scale war is a stress scenario that is difficult to predict even in the most rigorous models. Under such conditions, the banking sector is traditionally the most vulnerable.
However, there was no mass bank failure. Banks with Russian capital were removed from the market, and some institutions were shut down due to violations of financial monitoring requirements or insolvency, but no systemic destabilization occurred. Years of stress testing, increased capital requirements, and accumulated buffers became the safety net that effectively determined the banking system’s ability to withstand crisis conditions.
Growth in Lending and the Funding Base
For the second consecutive year, the banking sector has increased lending by 30–35% compared to the previous year. This is occurring amid a continued conservative regulatory approach and high risk assessment standards. This growth is taking place within a more capitalized and regulated system.
At the same time, deposits and funds in current accounts are growing. This indicates a steady increase in confidence in the banking system. It is the deposit base that forms the resource for lending, and its growth creates the conditions for further expansion of lending operations.
How this affects the economy
The growth in lending expands businesses’ access to financial resources. This allows them to invest in development, modernization, and scaling up their operations. As a result, productivity increases, jobs are created, and incomes rise.
This effect is also significant for small and microbusinesses. Expanded financing in large and medium-sized businesses generates additional demand in related sectors. Rising employee incomes translate into consumer demand, which supports economic activity at the local level.
Thus, through lending, financial resources are channeled toward the development of businesses and production.
Today’s lending trends are shaped by conditions that are fundamentally different from those prior to 2014. The banking system has revised its risk management approaches, strengthened capital requirements, and demonstrated its resilience in 2022. Therefore, mechanical currency comparisons with the pre-crisis period do not reflect the essence of the changes. The current growth in lending is the result of these changes and restored confidence in the system. Today, lending is growing in a system that has already been tested by the crisis—and this is far more important than any currency parallels with 2013.
