The banks continued to report bullish expectations about deposit inflows, and growth in household and corporate loans. At the same time, the banks reported an increase in risks, especially credit risk (this risk rose in Q2 and is expected to rise further in Q3). This is according to the findings of the latest lending survey.
The banks expect further growth in loans and deposits
The surveyed banks said that deposit and loan portfolios would grow over the next 12 months. This trend has persisted for 13 consecutive quarters in the retail segment, and for 11 quarters in the corporate sector.
A total of 74% of the respondents expect their corporate loan portfolio to grow, while 70% expect retail loans to grow. Some large banks expect a minor decrease in the quality of their retail loan portfolios. At the same time, none of the respondents anticipate that the quality of corporate loans will deteriorate.
Two thirds of those surveyed expect an inflow of both corporate and retail deposits.
Q3 is expected to see rising demand for loans to small and medium businesses, hryvnia loans, and short-term loans
Respondents reported the same expectations for Q3 as for Q2. The banks expect that demand for loans will rise in July – September – in particular demand from small and medium businesses and demand for consumer loans. Respondents said that, as in previous quarters, short-term and hryvnia loans would be in the highest demand.
Although 19% of respondents intend to tighten requirements on FX lending, and 16% on long-term lending to businesses, overall they expect that in Q3 lending standards (internal requirements and criteria banks apply to their lending policies) for businesses and households will remain unchanged.
The banks say they might ease lending standards slightly for small and medium businesses, and for short-term and hryvnia loans.
Demand for loans to small and medium businesses and to households continues to rise
Expectations of higher demand for loans to small and medium businesses, and for short-term and hryvnia loans, were realized in April – June. These trends result from the needs of businesses for working capital, funds for investments, and the need for large companies to restructure their debts. Lending standards for corporate borrowers were little changed in the previous quarter, despite a fifth of the respondents reporting that they had slightly eased lending standards for small and medium businesses amid stronger competition for reliable borrowers.
Households’ demand for consumer loans also rose in Q2. This was mainly reported by banks with large portfolios of retail loans. This rise was supported by improved consumer sentiment and higher spending on durable goods. Lending standards for households remained unchanged in Q2.
Only 15% of those surveyed reported an easing of internal requirements and underwriting criteria for consumer loans, due to stronger competition from other banks, positive expectations of economic growth, and consumers’ improved repayment ability.
The banks have improved their own assessments of the debt burden on borrowers. The percentage of respondents who assessed corporate sector leverage as high dropped to 18% in Q2, down from 27% in Q1. A total of 92% of respondents referred to the debt burden on small and medium businesses either as low or moderate, with the balance of responses at a record low for the entire survey period.
The debt burden of households continues to decrease, with 88% of respondents assessing it as either low or moderate.
The overall risk level increased in Q2
The banks reported an increase in all risks, apart from currency risk, in Q2 (currency risk has remained low for three quarters in a row). Trends were broken for currency, operational and liquidity risks, which decreased in Q1 but have now increased.
Although in Q1 the banks expected credit risk to decrease markedly, this risk was reported to have increased most pronouncedly in Q2 (as cited by 40% of those surveyed).
Respondents anticipate that currency risk will increase most noticeably in Q3 (the balance of responses was 18%). Credit and operational risks may also increase. At the same time, respondents expect interest rate and liquidity risks to drop.
The next lending survey on expectations of lending conditions, for Q4 2019, will be published in October 2019.
Note: The latest survey of credit managers from 50 banks was conducted between 19 June and 10 July 2019. These banks account for 99% of the banking system’s total assets. The survey results reflect the views of respondents, and are not necessarily the assessments or forecasts of the National Bank of Ukraine.
For reference: The NBU publishes lending surveys on a quarterly basis. The survey aims to promote better understanding by the NBU and other banking sector stakeholders of lending market conditions and trends. It provides general estimates and forecasts of changes in lending standards and conditions for the corporate sector and households, as well as fluctuations in demand for borrowing funds, etc.