As of July 1, 2015, the financial result of the operating banks was negative and amounted to UAH 30.6 billion. This was evident from data on income and expenses of the Ukrainian banks in the first half of 2015. Overall, since the start of the year, Ukraine’s banks sustained heavy losses amounting to almost UAH 82 billion, with the insolvent banks that have been put under receivership by the Deposit Guarantee Fund accounting for 62.7% of the total losses.
Net losses reported by the banks were due to the significant allocations to 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 half of 2015, allocations to provisions increased 4.4-fold compared to those in the same period of the previous year.
The structure of income and expenses of banks has undergone changes. The difficult economic conditions and a reduction in bank lending led to a decrease in the share of interest income by 4.31 p.p., compared with the first half of 2014. Currently, interest income accounts for 68.4% of the total income earned by the banks. At the same time, by taking a more prudent approach to pursuing the revenue-expenditure policy, the banks increased their trading and other operating income, and consequently their shares in the total income, by 2.3 p. p. and 1.7 p. p. to 10.9% and 5.6% respectively. At that, a moderate pricing policy pursued by banks has resulted in an increase by 19.4% in the fee and commission income, compared with the first half of 2014, which saw their share in the total income rise by 0.4 p. p. to 12.7%.
The efforts by banks to streamline the organizational structure and the number of staff have led to a 10.2% reduction in general administrative expenses, compared with the first half of 2014, which their share in the total expenses decreasing by 11.5 p. p. to 9.6%.
The decline in economic activity at the turn of the year, the effects of elevated devaluation and inflation expectations exerted a drag on the resumption of the operation of the banking sector. At the same time, the banking sector clean-up through the resolution of insolvent banks, stabilization in the FX market in the second quarter of 2015, and a gradual improvement in inflation dynamics contributed to the stabilization in the banking sector. Since April 2015 for three months running, household deposits in the domestic currency have been on an upward trend (deposits of legal entities in domestic currency have been on an upward trend over June-July), with foreign-currency deposits decreasing at a slower pace.
With a view to ensuring the stable operation of the banking system, in particular in terms of securing a sufficient capitalization of the banking sector, the diagnostic studies of the 20 next largest banks are currently being conducted within the framework of the IMF's Extended Fund Facility Arrangement with Ukraine (EFF). Based on their results, banks' additional capital needs will be identified. Based on the results of last year's stress tests, which were carried out within the framework of the IMF Stand-By Arrangement and the Financial Sector Development Project supported by the World Bank, all the banks that were required to increase capitalization to get fully capitalized have successfully executed their business plans devised based on diagnostic study results and in line with commitments undertaken by banks to take measures to this effect within a set timeframe.