Volumes of services provided by life insurers and finance companies’ lending grew significantly in Q4 2023. Assets of other financial institutions and volumes of main financial services decreased over the quarter. In the meantime, finance companies remained profitable. This is according to the latest quarterly Non-bank Financial Sector Review.
Insurers
Assets of non-life insurers remained unchanged in Q4, and increased by only 1% in 2023 as a whole. Life insurers’ assets grew by 4% qoq and 17% yoy.
Gross premiums on non-life insurance declined by 2% qoq in Q4 2023 but rose by 17% yoy. Life insurance premiums grew markedly in both quarterly and annual terms: by 22% and 19%, respectively.
Car insurance continued to lead by volume of insurance premiums compared to other types of non-life insurance (C&C, Compulsory Motor Third Party Liability Insurance, Green Card). Gross premiums on property and fire risk insurance increased by 40% yoy. However, this product has not recovered from the fall in 2022 yet.
Non-life insurers were operationally profitable in 2023, posting UAH 1.9 billion in profits, which secured return on equity of 10%. This was almost 1.5 times lower than in 2022, but twice higher than in 2021.
Life insurers finished the year recording a profit of UAH 0.5 billion on the back of their investment income. Their return on equity was 19%.
The number of insurers in breach of required ratios declined to five companies at the end of 2023, but their share in insurers’ assets grew to 8%.
Credit Unions
The volume of credit unions' assets grew slightly in Q4, while overall for the year it decreased by 2%. The volume of new loans decreased by 2% qoq due to a decline in all loans, except for loans to businesses. The declared average share of loans past due for more than 90 days decreased by 2 pp over the quarter, to 26%.
Net interest income of credit unions dropped by 11% qoq and by 15% yoy, while administrative expenses rose. Despite the operational inefficiency, credit unions earned a moderate profit due to lower loan loss provisions. The small profit increased the role of own funds in funding.
The number of violators of requirements halved over the year, to 21. Credit unions mostly violated the limit on the share of unproductive assets.
Finance Companies and Pawnshops
The segment's assets decreased by 1% in Q4 due to the exit of a number of finance companies, but grew by 2.7% in annual terms. The volume of all types of financial services, except for loans, declined.
Finance companies increased lending for the second quarter in a row. The volume of loans disbursed in Q4 grew by 10.7%, driven by new loans to businesses and households. Over the year, 70% more loans were granted to households than in 2022, but this was still 40% less than in 2021.
Leasing transactions decreased by 18% over the quarter, primarily at legal-entity lessors. As before, new leasing agreements were concluded for the purchase of cars, agricultural machinery, and trucks.
Finance companies earned UAH 8.5 billion in profit for the year, more than half of which was earned by Ukrfinzhytlo, the state-owned company that operates the eOselia program, through interest payments on domestic government debt securities in its capital. Three-quarters of finance companies were profitable.
Pawnshop business stagnated in Q4. Assets and new loans declined, and interest income fell. However, the segment made a profit due to lower administrative expenses.
Prospects and Risks
Changes to the legislation on microlending (on the maximum interest rates and the regulator's right to set requirements for assessing the borrower's creditworthiness) and the expansion of the scope of Credit Register participants to include finance companies and credit unions will facilitate more balanced lending.
Insurers will start the year by conducting a pilot project of asset quality review – an additional audit report must be submitted by 30 June 2024.
The transition period for market participants to bring their activities in line with the requirements of the updated legislation for non-bank financial institutions continues. The NBU has already approved the relevant regulations. Compliance with these regulations is key to the sustainability and further development of the market.
The Non-bank Financial Sector Review is a quarterly report that was first published by the NBU in October 2020. It focuses on the activities of NBU-regulated non-bank financial institutions, such as insurers, credit unions, finance companies, and pawnshops. The review highlights key trends in the non-bank financial market and provides comprehensive insights into its performance.