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Banks’ NPL Ratio Dropped by 7.4 pp, to 41% in 2020

Banks’ NPL Ratio Dropped by 7.4 pp, to 41% in 2020

In 2020, the non-performing loans (NPL) ratio in Ukrainian banks declined from 48.4% (as of 1 January 2020) to 41% (as of 1 January 2021).

The NBU-developed requirements for banks to manage problem assets contributed to progress in dealing with NPLs. Pursuant to these requirements, banks submitted their NPL management strategies.  In their NPL strategies, banks defined their approaches to resolving NPLs and started to implement them. In addition, in 2020, criteria were set for writing off the debts that are not expected to be repaid. Accordingly, the Cabinet of Ministers of Ukraine approved the measures to manage the problem assets of state-owned banks.

Loan portfolio quality improved across all bank groups. State-owned banks did large-scale work on clearing their portfolios of NPLs. In late June, the Financial Stability Council approved the three-year clean-up plans filed by the state-owned banks. In general, in 2020, they wrote off UAH 30.6 billion and an equivalent of USD 3.1 billion in fully provisioned loans. Taking into account these actions, the state-owned banks last year reduced their share of NPLs from 63.5% to 57.4%.

Banks with foreign capital (except Russian banks) also did considerable clean-up work to get rid of NPLs. Over the year, the NPL ratio in foreign groups’ banks (except Russian banks) decreased from 16% to 12.3%. Foreign-owned banks further plan to write off and sell these debts, and expect to settle them on a voluntary basis. Over the year, banks with Ukrainian capital reduced their NPL ratio from 18.6% to 14.6%. Their main instrument to reduce the NPL ratio is writing off and selling NPLs.

"In the next two years, we expect the banks to get rid of the NPLs completely. If the implemented NPL management strategy succeeds, banks will reduce their NPLs threefold.  It will allow them, already at the beginning of 2021, to reduce their NPL ratio to 24%, and in case of a substantial increase in lending, the NPL level will fall below 20%. At present, NPLs put no pressure on banks’ profitability and capital. This is because 98% of the loans have been provisioned. However, this NPL ratio is not only a burden on banks, but also a question of banks’ investment attractiveness, which requires improvement," said Kyrylo Shevchenko, NBU Governor.

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