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Banks’ NPL Portfolio Drops by UAH 7 Billion in H1

Banks’ NPL Portfolio Drops by UAH 7 Billion in H1

The banking sector’s portfolio of nonperforming loans (NPLs) amounted to UAH 425 billion as of 1 July 2023, which was UAH 7 billion less than as of 1 January. At the same time, the NPL ratio in H1 rose by 0.8 pp, to 38.9%, due to a decline in the total loan portfolio.

However, the banking sector’s NPL ratio shed 0.2 pp in June thanks to higher quality of new loans, which are mostly issued under state support programs, and due to writing off nonperforming retail loans.

In the Bank Lending Survey held in June, for the first time since the full-scale war broke out, the banks highlighted a rise in demand for consumer loans and in corporate loan application approvals.

The banks recognized credit losses at a slower pace this year compared to last year. The banks’ loan loss provisions made since the start of the full-scale war have reached UAH 103 billion, which accounted for almost 15% of the performing loan portfolio the banks had at the end of February 2022.

As a reminder, the NBU improved its estimate of a potential portfolio loss caused by the war to around 20%, compared to the previous estimate of 30%, as the pessimistic scenario of prolonged adverse effects from electricity shortages did not materialize.

However, the resilience assessment of the banks and the banking system is underway. The assessment is likely to reveal additional losses from credit risk in some banks, which they will have to recognize.

Before russia’s military onslaught on Ukraine, the NLP ratio in Ukrainian banks had been declining steadily since 2018 (from 55% to 27% as of 1 March 2022), and the banks’ loan portfolio had been rising.

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