Banks are ramping up retail lending. In H1 2017, retail loans continued to grow. Retail deposit growth also accelerated. The fourth issue of the NBU’s quarterly Banking Sector Review suggests that retail lending is expected to pick up further throughout the year.

In H1 2017, retail loans in domestic currency went up by 13.4%. The growth in the retail loan portfolio suggests a recovery in banks' appetite for lending after a prolonged pause. Retail lending is expected to pick up further, driven by an increase in household income, with consumer confidence remaining robust.

Corporate lending growth was mainly restrained by poor creditor rights protection that is associated with high credit risk in the corporate sector.

In Q2 2017, the pace of hryvnia deposit inflows accelerated from + UAH 9 billion in Q1 to +UAH 16 billion in Q2. State-owned banks intensified deposit mobilization efforts.  Meanwhile, funds of former president Yanukovych officials confiscated following court ruling and dividends paid by some state-owned enterprises were the major factors behind the decline in  the stock of corporate deposits. Overall, customers’ deposits account for 74.3% of the banking system’s liabilities and remain the main source of funding.

Interest rates continued to trend downwards, albeit at a slower pace. The Ukrainian Index of Retail Deposit rates suggests that in Q2 the interest rate on retail deposits in hryvnia decreased by 0.8 pps to 15.6% p.a, while that on retail deposits in US dollars went down to 4.0% p.a, thus pushing corporate lending rates down.

 However, corporate lending rates decreased at a slower pace than deposite rates,  creating the potential for a further decline.

Monetary policy easing provides room for a further decline in interest rates.. The key policy rate cuts from 14% to 12.5% by the NBU was transmitted into lower interest rates in the economy. In August, state-owned banks cut interest rates on retail deposits. Privately owned banks will also probably review interest rates in response.

Banks continue to repay loans to the NBU. In Q2, their share in financial institutions’ liabilities decreased by 0.4 pps to 1.2%.

Four banks have been put into resolution since early April, out of which one bank was withdrawn from the market for its failure to the minimum statutory capital requirements and increase the authorized capital to UAH 200 million.  This had no impact on the level of concentration in the banking sector: As before, 20 largest banks account for 90% of net assets.

In Q2, CB PRIVATBANK PJSC and banks with Russian state capital posted losses due to additional provisioning and the sale of non-performing loans. This affected the banking sector’s performance: banks posted a net loss of UAH  5.1 billion in Q2. The remaining financial institutions (excluding CB PRIVATBANK PJSC and banks with Russian state capital) posted a profit of UAH 3.9 billion. In 2017, the banking sector (excluding CB PRIVATBANK PJSC) is expected to post a profit.

Data on loans  published in the “Banking Sector Review” differ from the corresponding data published in the “Monetary Statistics” subsection as they:

• contain data on loan that were solvent as at the reporting date, unless otherwise indicated;
• cover data provided by banks excluding their branches operating abroad;
• comprise amounts placed with other resident and non-resident banks;
• adjusted for loan loss provisions, unless otherwise indicated;
• contain data on personal savings (deposit) certificates, unless otherwise indicated; and
• comprise information about non-resident clients.