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NBU Council Stresses the Need to Boost Lending in Ukraine. The relevant recommendations have been prepared for the NBU Board and Ukrainian Government

On 13 December 2017, the NBU Council (hereinafter - the Council) held a meeting, where they discussed lending issues and ways for its restoration, and the role of the NBU and central executive authorities in this process. Based on its results the relevant recommendations have been prepared for the NBU Board and Ukrainian Government.

At the beginning of the meeting, NBU Council Chairman Bohdan Danylyshyn said that “creation of favorable conditions for the lending restoration in Ukraine is an important area of current year’s activity of the Council. Only in the last calendar month we have processed relevant materials from 30 organizations, heard from the members of the Expert Advisory Board. The National Bank of Ukraine now has draft Recommendations to submit to the Government and NBU Board. I am sure that in a few days they will be finalized and made public,” said Bohdan Danylyshyn at the end of the meeting.

The Council took into account the information about the status, problems, prospects and directions of lending recovery in Ukraine presented by Vasyl Furman, NBU Council member. According to him, “effective economic development is possible only with the active development of the real sector of the economy, which should be the priority object of bank lending”. However, the influence of the banking sector on the investment activity of enterprises remains insignificant. The share of bank loans and other loans among capital investment sources in the first half of 2017 amounted to only 5.2%. Enterprises implement their investment projects mainly at their own expense, which is facilitated by their profitable activity - in particular, large and medium enterprises in January-September 2017 received a positive financial result of UAH 368.6 billion, an increase of 36.3% compared with the same period last year.

During 2017, with a significant revival of lending to the households, there is a slight increase in lending to the corporate sector of the economy. In particular, the total debt on loans granted to the corporate sector of the economy at the end of November amounted to UAH 828 billion, which is 1.1% less than the corresponding indicator at the beginning of January (UAH 837.3 billion). At the same time, the total debt on hryvnia corporate loanss, as of 30 November 2017, amounted to UAH 457.3 billion, which is 6.6% more than the same indicator as of 31 December 2016 (UAH 429 billion).

Amid the banks’ resource base restoration (by the end of the 10 months, deposits both in the national and foreign currencies grew), and low deposit rates (interest rates on FX deposits are at their historical minimum, those of hryvnia deposits - at the lowest level for last 6 years), which are important prerequisites for lending revival, interest rates on bank loans remain relatively high. At the same time, the dynamics of interest rates on loans varied - if the rate on hryvnia loans to households in November decreased compared with October from 28.9% per annum to 28.1%, the interest rate of hryvnia corporate loans increased from 14.2% to 15.3%.

During the current year there is a significant increase in the share of short-term loans: as of the end of 2016 the share of loans with maturities less than 1 year within the total loan portfolio of banks made 37.2%, while as of 31 October 2017, it was 49.7%. The share of loans with maturities over 5 years was 21% at the end of October.

The share of FX loans in the banks’ loan portfolio remains high (44.4% at the end of Q3), which indicates a high level of dollarization of the economy and potential exchange rate risks for banks and borrowers.

During the meeting, it was stressed that the total loan portfolio for 11 months remained practically unchanged, the loan portfolio of economic entities decreased, non-bank lending was developing, and capital was migrating to unregulated markets. All these factors not only hold back the resumption of lending, but also create additional risks for financial stability and monetary policy.

Council members stressed that the banking sector should become the main lender to active economic development. The situation requires decisive coherent actions at the state level, aimed at ensuring the revival of lending to the Ukrainian economy.

During the meeting, the draft Recommendations to the NBU Board and the Government of Ukraine on revival of lending were discussed and will be published soon.

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