Following the rapidly unfolding crisis in the spring, in Q3 the main performance indicators of the banks operating in Ukraine started to turn positive again.
The net corporate and retail loan portfolio increased. For the first time in many years, mortgages grew faster than consumer loans. The sector’s net assets grew by 7.6% during the report period.
The net corporate and retail loan portfolio increased. For the first time in many years, mortgages grew faster than consumer loans. The sector’s net assets grew by 7.6% during the report period.
The growth in retail deposits with banks decelerated compared to the previous quarter, dragged down by increased consumer spending. Deposit growth was mainly generated by demand deposits. A noticeable increase in the banks’ investments in government securities indicated that the sector had sufficient liquidity. Although this year the banks’ profit, as expected, was lower compared to last year, interest income and fee and commission income returned to growth. Provisioning for expected credit losses was mainly responsible for the lower profit. The banking sector is expected to end the current year with a profit, the recent report of the National Bank of Ukraine (NBU) reads.
In Q3, one bank was declared insolvent and liquidated. As of late September, there were 74 solvent banks. In Q3, the state-owned banks, including Privatbank, decreased their share of net assets and retail deposits by 0.7 pp and 0.5 pp respectively, to 53.5% and 60.6%. The largest 20 banks increased their share of net assets by 0.1 pp, to 92.1%.
The sector’s net assets grew by 7.6% in Q3, to UAH 1.71 trillion. However, when recalculated using the exchange rate at the start of Q3, net assets were up by only 5.4%. A rise in interbank assets, including correspondent accounts held at the NBU and investments in government securities, generated two-thirds of the growth. FX interbank assets increased most of all (by 11.7% q-o-q in the dollar equivalent). Domestic government debt securities were up by 4.8%, while NBU certificates of deposit rose by 17.0%. The share of customer loans in assets dropped by 0.9 pp, to 33.7%.
The loan portfolio grew gradually in Q3. Net hryvnia corporate loans increased by 3.0%1 in Q3, but were still 6.0% short of the level seen in September 2019. The largest increases were reported by foreign-owned and privately owned banks (+10.4% q-o-q and +9.5% q-o-q respectively). FX loans in the dollar equivalent rose by 1.1% q-o-q, while falling by 8.1% y-o-y.
The growth in net hryvnia retail loans declined further, to 8.8% y-o-y as of late September, compared to +26.9% y-o-y in March and +13.1% y-o-y in June. In Q3, for the first time in recent years, the growth in net hryvnia loans for the purchase, construction, and renovation of real estate (+6.9% q-o-q) outpaced that of the entire portfolio (+3.9% q-o-q).
The nonperforming loans ratio shrank by 2.9 pp in Q3, to 45.6% of the loan portfolio. The main reason for this was the writing-off, in accordance with the rules set by the NBU, of those loans which were fully provisioned, and which the banks do not expect to generate any cash flows. The state owned banks were the most active in writing NPLs off.
In Q3, the banks’ total liabilities increased by 7.7%, to UAH 1.50 trillion. As of the end of the quarter, deposits accounted for 85.0% of total liabilities. Corporate deposits grew at a faster pace than retail deposits. As a result, the share of corporate deposits rose by 1.3 pp, while that of retail deposits contracted by 1.7 pp. The banks’ liabilities to the NBU also increased, by 0.7 pp, to 1.3%.
Hryvnia corporate deposits expanded by 12.6% q-o-q or by 33.6% y-o-y, while FX deposits rose by 2.8% q-o-q or by 23.8% y-o-y in the dollar equivalent. This growth resulted, among other things, from energy companies’ receipts. Hryvnia deposits grew the most at state-owned banks, including Privatbank (+17.6% q-o-q). Only the state-owned banks reported FX deposit outflows, mainly due to Naftogaz paying taxes and dividends in Q3.
Hryvnia retail deposits rose by only 1.2% in Q3 (+27.1% y-o-y), compared to the growth of 10.9% q-o-q seen in Q2. The private banks and Privatbank led the way in this segment of deposits, with growth of 4.7% and 3.2% respectively. FX retail deposits grew by 1.3% q-o-q or by 5.3% y-o-y.
The dollarization rate of deposits increased by 0.3 pp in Q3, to 41.0%, driven by a weaker hryvnia. When recalculated using the exchange rate at the start of Q3, the share of FX deposits dropped by 2.0 pp.
Q3 saw a slower fall in deposit and loan rates. The interest rate on 12-month hryvnia retail deposits moved down by 0.9 pp in Q3, to 8.7% per annum, while that on US dollar ones hovered at around 1.3% per annum. Although the spread between interest rates on three-month and 12-month hryvnia deposits widened slightly, from 0.2 pp to 0.5 pp, this difference did not encourage depositors to opt for longer terms. Interest rates on hryvnia corporate deposits fell by 1.4 pp, to 3.8% per annum.
In Q3, average interest rates on hryvnia corporate loans dropped by 1.0 pp, to 9.6% per annum, while those on retail loans decreased by 1.9 pp, to 30.9% per annum. Interest rates on FX corporate loans ranged at around 5% per annum.
