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NBFI Transaction Volumes and Assets Rise, Sector Transformation Continues – Non-bank Financial Sector Review

NBFI Transaction Volumes and Assets Rise, Sector Transformation Continues – Non-bank Financial Sector Review

In Q2 2021, the volume of transactions and assets in the non-bank financial institutions (NBFIs) market increased. The market transformation, driven mainly by dormant players voluntarily winding down operations, did not hamper growth. In addition, the NBU took a tough line on violators by suspending or revoking the licenses of the NBFIs that failed to meet regulatory requirements.

The key task for many NBFIs remains to align their activities with the regulator’s requirements and improve performance.

Work is underway at the NBU to review NBFI ownership structures, register debt collection agencies, and develop a system to guarantee credit union deposits.

This is according to the August Non-bank Financial Sector Review.

Insurance companies

Insurers’ assets increased slightly in Q2 even as a number of these NBFIs exited the market. Gross insurance premiums in most insurance segments increased compared to the previous quarter.

The financial performance of nonlife insurers improved in Q2 as the insurance segment rebounded and liquidation costs, administrative costs, and other expenses declined. Yet these costs remained significant.

The number of insurers in violation of solvency requirements is gradually shrinking. As of 1 July, 23 licensed insurers did not meet the required solvency and capital adequacy ratios or the asset risk ratio. One of these NBFIs has already resolved this violation. Insurers that are in breach of regulations are required to file their business recovery plans with the NBU or eliminate their violations in short order. Those unable to do it have to shut down.

Credit unions

Credit union assets are growing at a moderate pace. This growth is uneven and is primarily driven by the largest credit unions. The loan portfolio of credit unions gained 4% in Q2, while new lending grew by 11%. The latter includes consumer lending, which was up 21%. The quality of the loan portfolio remained virtually unchanged.

Most credit unions reported profits gains, thanks to higher interest income and less provisioning. This made them more solvent and reduced the number of capital adequacy ratio violators.

Finance companies and pawnshops

Finance companies increased their assets in Q2, reflecting the growth in all types of financial services provided. New loans increased only due to lending to households. Financial leasing transactions were up significantly. Guarantee transactions increased after a two-year break. Factoring transactions also increased slightly, but they were still down from last year.

In H1 2021, finance companies reported record profits compared to the same periods of the previous three years.

In Q2, New lending by pawnshops increased by 5% qoq. The collateral coverage ratio surged to an all-time high of 133%. Pawnshops continued to generate profits.

For reference

The Non-bank Financial Sector Review is a quarterly report that was first published by the NBU in Ukraine in October of 2020.

It focuses on the activities of NBU-regulated NBFIs, such as insurers, credit unions, finance companies, and pawnshops. The review highlights key trends in the nonbank financial market and provides comprehensive insights into its performance.

 

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