In the first quarter of 2015, the operating banks made losses amounting to UAH 16.2 billion.
Overall, since the beginning of the year, the Ukrainian banks have incurred heavy losses (UAH 80.9 billion), with the insolvent banks that have been placed under provisional administration by the Deposit Guarantee Fund accounting for 80% of these losses.
We primarily refer to NADRA PJSCCB, Delta Bank PJSC, and IMEXBANK PJSC that have produced total losses of UAH 60 billion.
Net losses reported by the Ukrainian banks were due to the substantial loan loss provisions (provisions against possible losses arising from asset side operations), in particular, the provisions against loans to the borrowers whose creditworthiness had deteriorated. In the first quarter of 2015, the loan loss provisions increased 7.2-fold compared to those in the same period of the previous year. The bulk of loan loss provisions was made in February. In March, the pace of growth in provisions slowed down amid stabilization in the forex market.
In the challenging economic conditions, those banks that had streamlined their revenue-expenditure policy proved successful. In the January-through-March period, net commission and trading income increased in the banking system as a whole, compared to the same period of the previous year, whereas general administrative expenses continued to follow a downward trend.
The deterioration of the quality of the loan portfolio, the negative effect of exchange rate fluctuations, risky policy pursued by banks, the banks' undercapitalization needed to be addressed by putting in place a package of stabilization measures and cleaning up the banking system of unscrupulous banks. In order to create the necessary conditions for the stabilization, the National Bank of Ukraine has approved a series of decisions. The regulator has established the unified rules governing internal control systems of banks that are aimed at enhancing the quality of risk management framework. Banks are required to carry out a proper assessment of risks arising from failure by counterparties to meet their obligations and set aside loan loss provisions to fully cover expected losses. Those banks that are in breach with prudential requirements have to develop a detailed action plan to eliminate deficiencies and submit it to the National Bank of Ukraine, and explore possible ways of increasing banks' capitalization and improving the quality of their assets.
The National Bank monitors banks' compliance with the Action Plans. According to First Deputy Governor of the National Bank of Ukraine Oleksandr Pysaruk, special attention is being paid to large banks that are exposed to considerable risks due to large scales of their operations. “We are launching the diagnostic exercises for the first 20 largest operating banks by asset size. Based on their findings, undercapitalized banks will be asked to increase their capital to get fully capitalized. Should the exercise reveal high related-party exposure, banks will be required to unwind above-limit related party exposures. This will help put banks back on track and restore their profitability," he noted.
These measures are expected to gradually stabilize the banking sector.