In Q4 2021, the banking sector continued to increase its assets through lending and transactions with government securities. The annual pace of growth in hryvnia corporate lending was the highest in the last decade. Mortgages grew almost twice as fast as consumer loans. Hryvnia deposit increases outpaced the growth in FX deposits. As a result, the dedollarization of deposits continued. By actively scaling up transactions amid low interest rates on deposits, banks were able to generate record profits. The high profitability of the banking sector allows banks to build planned capital buffers. This is according to the latest Banking Sector Review published by the NBU.
Bank assets grew as lending and investment in government securities revived
Net assets of banks increased with the pick-up in customer lending. At the same time, banks stepped up their holdings of NBU certificates of deposit and domestic government debt securities.
Net hryvnia corporate loan portfolios grew by 2.3% qoq and more than 40% yoy.
The annual rate of growth in retail loans accelerated to 36.9%, exceeding the pre-COVID-19 crisis level. The increase in net mortgages at the end of the year reached a new historical maximum of more than 60% yoy.
The NPL ratio shrank by 3.2 pp qoq and 11 pp yoy, to 30%, primarily due to state-owned banks, which rapidly increased their loan portfolios while actively writing off old NPLs.
Customer deposit growth ensured sufficient bank liquidity
Hryvnia corporate deposits were up 15.5% qoq and 26.4% yoy. The increase in hryvnia retail deposits was slower, up 8.1% qoq and 15.3% yoy. That includes term deposits, which rose by 9.6% yoy. Hryvnia deposit increases outpaced the growth in FX deposits. Thus, the share of FX deposits shrank by 2.6 pp, to 32.9%.
Banks’ profits broke records, doubling from 2020
In 2021, the banking sector reported profits of UAH 77.5 billion, an all-time high. Such solid performance was driven by a surge in net interest and commission income and low provisioning levels. Return on equity was 35%, up from 19% last year. The current high profitability and available capital cushion allow banks to easily meet the updated regulatory capital requirements and set aside capital buffers to absorb potential losses and continue to lend.
The loans and deposits data published in the Banking Sector Review differs from the corresponding information posted in the Monetary Statistics section of the NBU’s official website, because the former:
- contains data on the banks that were solvent as of the reporting date unless stated otherwise
- includes data from bank branches operating abroad
- contains data on deposits in other resident and nonresident banks
- has been adjusted for loan loss provisions unless stated otherwise
- contains data on personal certificates of deposit unless stated otherwise
- contains information on nonresident customers.