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Banks Cautious about Lending Recovery Outlook as War Grinds On – Bank Lending Survey

Banks Cautious about Lending Recovery Outlook as War Grinds On – Bank Lending Survey

In Q3, the banks continued to report a slowdown in lending due to the war: respondents pointed out a slight recovery in corporate demand for loans and a further reduction in retail demand. Respondents noted the tightening of lending standards and the decrease in the loan applications approval rate. The banks continue to expect growth in the demand for short-term and hryvnia corporate loans and predict an increase in most types of risk.

Demand for loans remains low, while lending standards have tightened again

In July–September 2022, borrowers showed modest interest in corporate loans. As in H1, demand was fueled by the need for working capital and debt restructuring. At the same time, higher interest rates and lower capital investment needs restrained the growth in demand.

For three quarters running, most banks said that they had tightened their corporate lending standards. For the most part, these were standards for long-term and FX loans, and loans to large companies.

Demand for retail loans continued to decrease, primarily due to worsening consumer sentiment. Pricing conditions had an adverse effect on mortgage demand: their estimated impact was at an all-time high. Retail lending standards tightened for the third straight quarter, primarily for mortgages.

Respondents noted a significant increase in interest rate, FX, and operational risks in Q3 2022.

Banks cautiously assess lending prospects, expect growth in funding and higher risks

In the next 12 months, most respondents predict restrained growth in corporate loans and expect a further reduction in retail lending. 

The banks expect loan portfolio quality to deteriorate despite a low-key improvement in estimates this quarter.

Respondents expect an increase in funding in the next 12 months, and predict more stable deposit inflows from households than from businesses.

In the coming three months, the banks anticipate that all types of risk will intensify, except liquidity risk.

Background information

The NBU publishes the Bank Lending Survey on a quarterly basis. The survey aims to deepen the understanding of credit market conditions and trends by the NBU and banking sector participants. It provides general assessments and forecasts of changes in lending standards and conditions for the corporate sector and households, fluctuations in lending demand, and more.

The latest survey of the credit managers of 26 banks was conducted between 16 September and 7 October 2022. These banks account for 93% of the banking system’s total assets. The results of the survey reflect the opinions of the respondents, and are not estimates or forecasts of the NBU.

The next survey of bank lending conditions, featuring expectations for Q1 2023, will be published in January 2023.

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


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