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Banks Are Optimistic about Funding Dynamics and Intend to Increase Capital – First Bank Funding Survey

Banks Are Optimistic about Funding Dynamics and Intend to Increase Capital – First Bank Funding Survey

The National Bank of Ukraine (NBU) has started publishing the findings of quarterly bank surveys on funding. The survey aims to promote better understanding by the NBU and other market participants of the dynamics of the volumes, structure, and costs of liabilities and capital of financial institutions.  

Funding is showing positive dynamics as maturities decline

In Q2 2021, 73% of banks that participated in the survey cited an increase in total funding volumes. 62% of banks saw an increase in corporate deposits, while 89% reported a rise in household deposits. At the same time, wholesale funding – issuing bonds, taking out loans from international financial institutions or parent banks, long-term refinancing, etc. – increased only in 18% of financial institutions. 

Most banks expect growth in funding volumes in Q3. The percentage of respondents who expect an increase in funding from households is twice as high as that of those expecting it from corporations. A quarter of respondents also forecast a decrease in liabilities to households, while one-third of respondents anticipate a drop in liabilities to corporates.

In the next 12 months, 38% of banks plan to raise wholesale funding to reconcile the maturities of their assets and liabilities, increase their balance sheets, and comply with regulatory requirements. 

Two-thirds of respondents cited a minor decrease in the average cost of funding for the quarter, mostly from households, while 14% cited its slight rise. The cost of wholesale funding remained unchanged for most respondents. 

In Q3, banks forecast a further slight decrease in the cost of funding due to an expected decline in cost of retail deposits. At the same time, the cost of wholesale funding will not change.

Almost two-thirds of banks reported a reduced share of FX funding over the past three months. The maturity of raised funds has also declined. These trends will persist in Q3. 

Financial institutions plan to increase capital

Over the past year, 53% of banks reported a decrease in capital, while 47% of respondents saw an increase in capital. At the same time, the overall cost of capital remained unchanged. All respondents expect an increase in their capital in the next 12 months. Capital increases are primarily driven by profitability, although for some banks capital growth is also part of their strategic growth plans. At the same time, regulatory requirements and economic developments may trigger capital decreases.

A quarter of respondents expect a slight decrease in the cost of capital, while the rest predict that it will stay flat in the next 12 months.

For reference:

The current Bank Funding Survey was carried out from 17 June through 9 July 2021 among 24 bank managers in charge of liabilities management. The surveyed financial institutions account for 91% of the total liabilities of the banking system. The Report comprises aggregated assessments and expectations of the respondents concerning volumes, costs, maturities of various types of funding and capital of banks, as well as drivers of these indicators. Survey findings reflect the views of the respondents and do not necessarily reflect the assessments or forecasts made by the NBU. The next Bank Funding Survey, on banks’ expectations for Q4 2021, will be published in October.


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