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Banks Forecast No Change in Volumes and a Major Rise in Cost of Funding – Bank Funding Survey

Banks Forecast No Change in Volumes and a Major Rise in Cost of Funding – Bank Funding Survey

Deposits grew in Q2 2022, according to the banks’ estimates. The cost of deposits increased due to higher interest rates on corporate and wholesale borrowing. The share of FX liabilities continued to decline, and the overall maturity of deposits decreased. Although capital has increased over the last 12 months, more than 60% of banks expect a drop in capital over the next 12 months.

Volumes of funding grew despite the war, and maturities decreased

In general, the banks had positive assessments of funding dynamics in April–June 2022: 72% of respondents reported growth in corporate deposits, more than a twofold increase from the level of the previous quarter. Retail deposits increased mainly at large banks. On the other hand, wholesale funding dropped, including NBU refinancing.

The financial institutions do not forecast any significant changes in borrowing volumes in Q3. They expect retail and corporate deposits will grow moderately, while wholesale funding will decrease further.

The average cost of funding rose in Q2. In the next three months, the banks project the cost of corporate and retail funds to rise considerably and the growth in prices of wholesale funding to moderate.

The trend toward dedollarization of deposits continues. The maturities of raised funding decreased at 81% of surveyed institutions. The banks expect this trend will last in Q3.

The financial institutions say that the volume of capital will decline and its cost will rise

The capital of most banks has increased over the past year. For the next 12 month, 63% of the financial institutions forecast a decrease in capital, mainly due to expected losses and negative developments in the economy. In Q1, 81% of banks shared this opinion. Therefore, the banks' expectations of changes in capital have become more optimistic.

The banks report the cost of capital to have risen slightly on average and expect this trend to continue.

For reference

The Bank Funding Survey was carried out from 28 June through 12 July 2022 among 27 bank managers in charge of liabilities management. The polled financial institutions accounted for 94% of the banking system’s total assets.  The report compiles aggregate assessments and expectations of respondents regarding the volumes, costs, and maturities of various types of funding and bank capital, as well as the drivers of these indicators. The results of the survey reflect the opinions of the respondents, and are not estimates or forecasts of the NBU. The next Bank Funding Survey, reflecting the banks’ expectations for Q4, will be published in October 2022.

The NBU highly appreciates the banks’ participation in the survey under conditions of martial law.


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