Assets of non-bank financial services providers increased by 11.9% yoy in Q3. Assets grew in all segments of this market, despite a decrease in the number of non-bank financial institutions (by 53 institutions over the quarter). This is according to the quarterly Non‑bank Financial Sector Review.
In Q3, non-life insurers saw their assets increase by 3% qoq, and life insurers by 4% qoq. Holdings of government securities grew the fastest for non-life insurers, and bank deposits for life insurers.
Gross insurance premiums rose significantly in both segments of the insurance market: by 14% qoq and by 18% yoy for non-life insurers, and by 16% qoq (for the first time since the start of the year) and by 7% yoy for life insurers. Mandatory third-party liability insurance premiums grew most rapidly in Q3.
In January–September, non-life insurers were operationally profitable and earned UAH 1.8 billion in profit, reaching a return on equity of 9%. Life insurers, despite their unprofitable operating activities, received investment income that provided a record profit of UAH 0.7 billion and a return on equity of 25%.
As of 1 October 2023, 13 insurers violated at least one of the requirements (solvency, capital adequacy, asset quality, and risk requirements). The violators’ share in assets was 7%.
Asset growth in Q3 continued primarily among deposit-taking credit unions. Assets of the institutions operating on share capital alone declined again.
The volume of loans granted over the quarter decreased by 10%, and the loan portfolio by 0.3%. The decline was the most pronounced in business loans to private farms (down by 38%), while outstanding consumer loans remained almost unchanged. The declared share of loans overdue by over 90 days decreased to 28%, but the amount of unpaid accrued interest was growing.
Higher operational efficiency allowed the sector to increase its profit to UAH 19.6 million in January–September 2023 and grow its equity.
As of 1 October 2023, the capital adequacy ratio was breached by the same ten credit unions as in the previous quarter.
Finance Companies and Pawnshops
The assets of the segment increased by 5.8% as a result of growth in all major types of services, except for factoring.
Lending to households has been recovering slowly: in the first three quarters of 2023, almost 40% fewer new loans were granted than in the same period of 2021.
Financial leasing volumes have been growing for the fifth quarter in a row. New leasing agreements were concluded for the purchase of cars, agricultural machinery, and trucks.
Thanks to a gradual recovery in service volumes, profits in January–September 2023 reached UAH 7.4 billion: more than half of it was received by Ukrfinzhytlo, the state-owned institution that runs the eOselia program.
In Q3, pawnshop operations continued to recover, with assets and new loans increasing slightly. Pawnshops' revenues grew slowly, which allowed them to generate profits and improve their profitability and capital ratios.
Prospects and Risks
New legislation for non-bank financial services providers will come into force in January 2024, tightening requirements for the quality of corporate governance, risk management, solvency, and market conduct as regards the consumers of the services. Companies will have to adapt their operations to the new requirements.
"The new requirements for capital and calculation of eligible assets, which will be introduced from the start of 2024, are a challenge for insurers to some extent," said Kateryna Rozhkova, First Deputy Governor of the NBU. “The updated requirements take into account the lessons of the past and the provisions of European directives. The focus is on recognizing assets at fair realistic value, which will help improve the quality and liquidity of insurers' assets as well as their discipline in fulfilling obligations."
The Non-bank Financial Sector Review is a quarterly report that was first published by the NBU in Ukraine in October of 2020. It focuses on the activities of NBU-regulated non-bank financial institutions, such as insurers, credit unions, finance companies, and pawnshops. The review highlights key trends in the non-bank financial market and provides comprehensive insights into its performance.