Corporate Lending Recovers after Slump Caused by russian Invasion, Retail Lending Rises across Segments – Banking Sector Review

The banks increased their net hryvnia corporate loan portfolio for the first time since Q3 2022. The growth in consumer loans continued for the second straight quarter. These are the takeaways from the Q3 2023 Banking Sector Review.

According to the report, the net hryvnia corporate loan portfolio grew in October for the fourth month in a row after the slump caused by russia’s full-scale invasion of Ukraine. The share of SMEs in this portfolio rose to 55%.

The net hryvnia retail loan portfolio continued to increase, primarily thanks to the revival of card-based lending. Net mortgages also increased in Q3, by 18.7% qoq, thanks to the issuing of mortgages under the eOselia program.

The banks had three straight quarters of almost no credit losses. The NPL ratio shrank due to write-offs of retail NPLs and because certain large corporate loans were reclassified as performing.

The share of client deposits – the major source of funding for the banks – grew for the fourth quarter running. In general, all of the banks increasingly ramped up their volumes of hryvnia deposits. The still attractive deposit rates helped increase hryvnia retail term deposits further, albeit at a progressively slower pace.

Although the NBU reduced its key policy rate, higher rates on NBU-issued three-month certificates of deposit and tighter reserve requirements for demand deposits continued to motivate the banks to raise retail term deposits. As a result, the decline in deposit rates due to the key policy rate cuts occurred slowly.

The banks retained their high operational efficiency and kept their provisioning costs at a minimum, and so the sector’s profitability continued to rise. Only seven, primarily small, banks came out as loss-making in Q3 (down from 15 in the prior quarter).

The preliminary results of this year’s resilience assessment of the banks are optimistic: only a few institutions may face a moderate need for capital. Most banks have a sufficient capital cushion to comfortably meet new regulatory requirements, despite the expected imposition of an additional tax on bank profits.

To ensure further sustainable development, the banks need to incorporate in their business strategies the results of the resilience assessment and the planned implementation of regulatory requirements. The banks should also update their business strategies where viable.

“We have been seeing a clear trend towards the recovery of corporate lending,” said NBU First Deputy Governor Kateryna Rozhkova. “So far, corporate lending has primarily been driven by the Affordable Loans 5–7–9% program. At the same time, some of the large foreign-owned banks have demonstrated portfolio growth outside the program. This comes as a positive signal that market-driven lending is possible even amid a full-scale war.”