At the beginning of the year, a traditional reduction in deposits was observed in the banking system. Particularly, in January 2018 the total deposit portfolio in domestic currency of solvent banks dropped down by 3.0% to UAH 475.4 billion. These trends are seenin the preliminary Monetary Statistics Data for January 2018.
First and foremost, this resulted from decrease in corporate hryvnia deposits (by 4.9% mom). Deposit account balances of households experienced a slightly smaller downturn (by 0.8% mom). In January, a reduction in deposit balances was mainly due to base effects, as strong deposit growth in December was attributed to significant budget expenditures at the end of the year and including advance pension payments.
Total loan portfolio of banks in domestic currency at the end of January remained at the same level as at the beginning and accounted for UAH 571.6 billion. An insufficient decline in corporate loans was balanced by increase in household borrowing. Specifically, hryvnia household loans increased by 3.9% mom primarily due to consumer lending.
In January, loan balances in foreign currency (in USD equivalent) showed an ample rise (by 11% for households and by 3.8% for corporate borrowers). Change in methodology for calculating these indicators was the contributing factor. Namely, the accounting specifics in the process of converting to IFRS 9, specifically on the account of interest income adjustments from impaired financial assets form operations in 2017.
In January, interest rates on both deposits and loans in domestic currency continued to rise in response to a gradual increase in the key policy rate by the NBU since October of the previous year by 3.5 pp to 16% p.a.
Interest rates on new hryvnia deposits increased to 11.6% for households, and to 9.6% for businesses. In view of the spike in costs of funding, interest rates on new hryvnia loans increased as well to 29.7% p.a. for households, and to 15.3% p.a. for businesses.
See the Macroeconomic and Monetary Review (February 2018) for more details on money market developments in January 2018.