In Q4 2022, the activity of non-bank financial services providers recovered slowly and unevenly, with volumes of services remaining much below pre-war levels. Over the year, the number of non-bank financial institutions (NBFIs) declined by 422, mainly due to some finance companies and credit unions exiting the market. In Q4, assets grew at finance companies only. In 2022 as a whole, insurers and finance companies reported an increase in their assets (by around 10%). The share of NBFIs in total assets of the NBU-regulated financial sector shrank gradually throughout the year, to 11.97% as of 31 December.
In order to continue their activities, market participants should pay more attention to complying with laws and regulations on ownership structures, consumer rights protection, AML/CFT, and so on. The NBU will apply corrective measures for significant violations of these requirements.
This is according to the quarterly Non-bank Financial Sector Review.
Assets of life insurers increased by 3% in Q4 2022 and by 18% over the full year. Nonlife insurers’ assets declined slightly over the quarter but rose by 6% year-on-year. Volumes of gross premiums grew by 9% qoq in life insurance and dropped by 8% in nonlife insurance. Over the year, life insurance premiums shrank by 17% and nonlife insurance premiums fell by 21%. Volumes of claims paid remained almost unchanged over the quarter. In annual terms, claim payments increased by 6% in life insurance and decreased by a third in nonlife insurance.
Cost-to-income ratios of insurers deteriorated further due to higher operating costs.
Nonlife and life insurers recorded a small loss in Q4, but both groups were profit-making as of the end of the year.
As of 1 January 2023, seven insurers violated at least one of solvency, capital adequacy and risk requirements.
The decline in the number of credit unions and volumes of their assets accelerated in Q4 2022. Assets as of the end of 2022 accounted for almost a half of assets held in 2021. The credit portfolio shed 14% qoq. The share of loans past due for more than 90 days reached 28% – the level of the 2020 crisis.
The materialization of credit risk led to an increase in provisioning by credit unions in Q4, making them loss-making as of the end of the quarter and year as a whole. A drop in operating income coupled with high administrative expenses also affected financial performance.
Additional share contributions and deposits continued to decrease as funds were repaid to depositors and some credit unions left the market.
The number of entities violating the capital adequacy ratio rose fivefold over the quarter, to 10 credit unions as of 1 January 2023.
Finance Companies and Pawnshops
Finance companies’ assets grew in Q4 despite many institutions leaving the market. Transaction volumes increased for main financial services. In particular, volumes of retail loans grew by 42% qoq and corporate loans rose by a third. Volumes of leasing services increased by 2.6 times compared to Q3.
In 2022, finance companies were generally profitable.
There was almost no development in pawnshop business in 2022. Annual lending volumes fell by 36%. Over the full year, pawnshops generated a loss, despite an increase in income in H2.
The Non-bank Financial Sector Review is a quarterly report that was first published by the National Bank of Ukraine in October 2020.
It focuses on the activities of NBU-regulated non-bank financial institutions, which are 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.
The review has been prepared using the information from the financial institutions that submitted their relevant reports to the National Bank of Ukraine as of 25 March 2023.
As they filed their earnings reports for Q4 2022, NBFIs, at the regulator’s request, adjusted their reporting figures or submitted reports for previous periods (in particular, for Q4 2021 and Q1–Q3 2022).