In Q1 2021 (hereinafter Q1), banks increased their loan portfolio in both the corporate and retail segments. The dynamics of retail deposits remained positive. The decline in interest rates on hryvnia business loans and retail deposits stopped after the NBU raised its key policy rate. Stronger demand for banking services helped speed up the growth in net interest and commission income. Provisioning was markedly lower than last year.
The focus remains on assessing loan portfolio quality: the stress testing of 30 financial institutions will begin after the results of the asset quality review of banks have been processed. The latest Banking Sector Review published by the NBU describes this in more detail.
Gradual economic recovery increases demand for loans
Demand for corporate and retail loans continued to rebound. In Q1, the net hryvnia corporate loan portfolio grew by 5.3% qoq and by 5.8% yoy. At the same time, FX loans decreased in dollar terms by 2.9% qoq and by 7.4% yoy.
After slowing last year, in Q1, the growth in net hryvnia retail loans accelerated by 6.0% qoq and by 8.2% yoy. Private banks led the way in both segments.
The NPL ratio declined by 1.1 pp in Q1, to 39.9%. Banks wrote off significantly fewer NPLs than in the previous quarter.
Growth in retail deposits decelerates, but remains significant
Hryvnia retail deposits, primarily those held by banks with private and foreign capital, grew by 2.6% in Q1 (up 24.2% yoy). The volume of FX retail deposits did not change significantly. Time deposits grew faster than demand deposits.
Hryvnia corporate deposits declined seasonally in Q1 after a spike in Q4 2020. Hryvnia deposit inflows resumed in March. At the same time, FX corporate deposits increased in dollar terms by 6.4% in Q1. As a result, the dollarization of deposits increased by 0.3 pp (to 38.3%).
Customer deposits make up almost 85% of liabilities and remain the basis of bank funding.
Resilience assessment focuses on loan portfolio quality
Banks reported profits of UAH 10.9 billion in Q1. The main reason the profits declined by almost one-third from Q1 2020 was the revaluation of indexed securities. At the same time, net interest and commission income grew by more than 15%. The main risks that the banking sector faced remain a decrease in interest income due to a slower decline in deposit interest rates, and credit risk.
To improve the sector’s resilience, the NBU conducts asset quality reviews and continues to implement a number of changes in banking regulation in line with Basel recommendations and EU regulations.
The loans and deposits data published in the Banking Sector Review differ from the corresponding data in the Monetary Statistics section because the former:
- contains data on the banks that were solvent as of the reporting date unless stated otherwise
- includes data from the banks' branches 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.