In 2014, net losses reported by the Ukrainian banks were due to an increase in loan loss provisions (provisions against possible losses arising from asset side operations). However, the main banking operations remained profitable across the entire banking system.

During 2014, in the wake of turbulent political and economic conditions, the banking system was exposed to substantial risks, in particular, credit risk. The creditworthiness of borrowers deteriorated and the amount of non-performing loans increased amid external shocks, which were difficult to project. The banks had lost the property pledged as collateral and other assets serving as collateral for loans, which had implications for the quality of loan portfolio and prompted the need to implement a package of contingency measures.

The banking sector's net losses were primarily attributed to a substantial rise in loan loss provisions. Overall, the loan loss provisions increased 3.7-fold from the previous year, with their share in total expenses climbing from 16.7% from 39.3%.

40% of total losses were reported by the banks that had been declared insolvent and those that had been placed under provisional administration by the Deposit Guarantee Fund. Excluding those losses, the banking sector made a loss of UAH 33.1 billion.

However, not all the banks made losses. The banks that had pursued a risky imprudent policy or funded large-scale projects and suffered heavy losses linked to the temporary occupation of the territory of the Autonomous Republic of Crimea and the developments in the east of Ukraine appeared to be the most vulnerable to shocks.

In spite of unfavorable external environment, the banking system maintains a certain degree of resilience. The policy intended to inject additional capital into banks and efforts to purge the banking sector of unscrupulous banks would provide a positive impetus to the banking system.