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Hryvnia deposits remain a profitable tool for generating passive income

Hryvnia deposits remain a profitable tool for generating passive income

In case of positive economic dynamics by the end of the year, the rate on 3-month certificates of deposit, which is the basis for the yield on hryvnia deposits, may decrease from the current 17.5% to 13-14%, which will affect the yield on hryvnia deposits. However, due to low inflation, their popularity will remain high. This was announced by Serhiy Mamedov, Chairman of the Board of GLOBUS BANK.

S Mamedov

The head of GLOBUS BANK does not rule out that by the end of 2024, rates on hryvnia deposits, depending on the term of placement, may slightly decrease, with maximum rates at 12-13% per annum. However, in the context of low inflation, which does not exceed 3.2% per annum, the “net” return on hryvnia deposits will be 5%, which is almost three times higher than the return on foreign currency deposits. The expert expects that the popularity of hryvnia deposits as the optimal and most profitable mechanism for generating passive income will remain high, and the number of new deposits in 2024 will increase by at least 10% compared to 2023.

“Currently, there are sufficient grounds for the situation in the banking sector to remain acceptable and promising despite new challenges, especially with regard to the further development of loan and deposit programs,” emphasized Sergiy Mamedov.

Speaking about the main expectations from the banking sector, the expert noted that as of mid-April, the key indicators set out in the state budget for 2024 are being met, primarily in terms of the “weak” devaluation of the hryvnia. Thus, in January-March, the dollar grew by an average of 2.6% against the hryvnia (from UAH 38 as of January 1 to UAH 38.99 as of April 1), which is almost a third of the planned annual devaluation - the budget provides for a rate of UAH 40.7, which is 7% of the “starting” rate at the beginning of 2024.

Mamedov suggests that if the budget forecasts coincide with the real situation, further devaluation of the hryvnia may amount to another 4.4%, and by the end of the year the national currency will theoretically decline at a slow pace of 0.5% per month on average (approximately UAH 0.19). According to him, during the first quarter, exchange rate fluctuations, both upward and downward, occur with a slight deviation from the “base” rate, which in the weekly context does not exceed 2%. At the same time, the permissible “backlash” of exchange rate changes is up to 5% of the basic rate.

“We understand that the market is alive, but the regime of ‘managed flexibility’ introduced by the regulator suppresses any manifestations of unmotivated growth of exchange rates, satiating demand through active foreign exchange interventions on the interbank market. This “formula” has so far met expectations, as further liberalization of the foreign exchange market will depend on a number of economic and military circumstances, among which the cornerstone is the amount of macro-financial assistance that covers the array of budget expenditures, as well as sufficient military and technical assistance to successfully fight the enemy,” the banker said.

Regarding the prospects for further development of banking products, in particular lending, the expert said that the March reduction of the discount rate from 15% to 14.5% creates the basis for a gradual correction of the actual rates on major loan products, such as targeted lending programs for small and medium-sized businesses, car loans, and mortgages in the primary market. In addition, he suggested that on April 25, at the next meeting of the NBU Monetary Committee, the regulator may once again cut the key policy rate by an average of 0.5-1 percentage points to 13.5-14%, and the rate on 3-month certificates of deposit may be reduced to 16.5-17%.

“Lowering the key policy rate allows banks to develop lending programs more actively, significantly reducing the interest rate pressure on the borrower. We can already talk about a certain benchmark by the end of the year: in the second half of the year, with the discount rate reduced to 14-12%, interest rates on some loans, especially on partnership loan programs, may fall by 2-3% on average,” predicts Sergey Mamedov.

According to the expert, by the end of the year, the “new” rates, depending on the down payment and loan term, may be as follows
car loans - from 5% to 12% per annum;
mortgage loans under joint programs with housing developers - from 4% to 16% per annum;
targeted loans for SMEs - from 15% to 17% per annum.

According to Serhiy Mamedov, the banking system was well prepared, having withstood the March and April missile and drone attacks on Ukrainian energy infrastructure facilities. However, certain difficulties in the work of branches were observed in the cities that suffered the greatest damage and where temporary power outages were introduced, in particular in Kharkiv, Odesa, Dnipro, Zaporizhzhia and a number of others.

According to the banker, the problems with power supply caused by the missile terror should be considered temporary, because, firstly, more than 2/3 of all bank branches are connected to the Power Banking system, which provides uninterrupted power supply, unimpeded access to the Internet, necessary banking operations, enhanced cyber protection against hacker interference, and overall safe stay of citizens in the branch, etc.

Secondly, in case of possible interruptions of mobile operators, a digital signature of the client has been introduced in banking applications, which will not require additional SMS confirmation for withdrawal of funds. In addition, the list of channels for notifying customers has been expanded, primarily through the use of messengers to which customers' mobile numbers are linked.

Thirdly, most banking operations can now be performed remotely through banking applications: from the simplest transfers to installment plans, opening a deposit, bank card, transferring funds to foreign bank cards with minimal fees, obtaining a loan, etc.

The expert said that the branches of the bank he heads, located in Odesa, Kharkiv, Dnipro, Zaporizhzhia and Sumy, have implemented an enhanced indefinite blackout protocol, which aims to ensure complete security of each transaction, provide the maximum range of services, promptly respond to any external threats and optimize working hours according to the security situation (depending on the specifics of the transaction, customers are redirected to other branches), as well as provide first aid to customers if necessary.

According to him, in March, the number of offline applications to bank branches in these cities decreased by an average of 15%, while the number of online applications through the banking application increased by an average of 25% (this includes both existing customers and those who have installed the application on their smartphones for the first time). In addition, the working hours of the branches were reduced by an average of 1.5 hours in compliance with the general requirements for the safety of citizens (for example, in case of air raid alert).

“Of course, it is quite difficult to predict the insidious actions of a completely unpredictable enemy. However, the easiest thing to do to ensure acceptable operation of bank branches is to equip them with generators of optimal power. From October 2022 to April 2023, Ukraine has already experienced the “half-year of generators,” and the experience has proven that even in difficult circumstances, the work of bank branches has not changed much (except for those cities where temporary restrictions and hourly power outages were observed after the March and April attacks). It can be said that the work of bank branches will stop only in the worst and most difficult case - when the military threat becomes insurmountable and there is a need to evacuate citizens,” the banker emphasized.

Answering the question whether there is a threat of a massive outflow of clients due to the escalation at the frontline and a possible repeated attack of the aggressor, as well as the related lack of confidence in the stability of the national currency, Serhiy Mamedov noted that as of mid-April, the potential risks for the Ukrainian banking system were quite controlled.

“Military risks were and are significant, and this is nothing new. For more than 2 years now, a full-scale war has been an integral part of all spheres of life and the country's economy. We are grateful to the Armed Forces of Ukraine, which are heroically defending our country, for the fact that Ukraine has adapted to live in a new dimension to some extent, although this “adaptation” comes at a huge price every day. However, the risk of not receiving the macro-financial assistance, in particular from the United States, that is so necessary for the state budget, may provoke an outflow of clients or curtailment of bank lending and deposit programs,” the expert emphasized.

He reminded that since the beginning of the year, Ukraine has already received $10.1 billion in external financing (more than $9 billion in March), which fully covers the 3-month need (from January to March inclusive) for external financing. At the same time, Ukraine has been waiting for a powerful package from the United States for six months now, and it is still waiting for a powerful package of more than $61 billion, of which $9.6 billion will be used for economic support.

“Without this help, the Ukrainian government will have to raise money from new and old ‘donors’ or, for example, cut annual state budget expenditures by more than UAH 380 billion (13.4% of total expenditures), which is extremely undesirable in a time of war,” the banker emphasized.

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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.

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The mission of the Association of Ukrainian Banks is to support the development of the national banking system. The AUB cooperates with the Verkhovna Rada of Ukraine on improving the legislation governing banking activities, and interacts with the National Bank of Ukraine on regulatory support for the functioning of banks and non-bank financial institutions. The CBA takes care of the professional development of bank employees, expands international relations with associations and banking institutions of other countries.



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