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NPL Ratio of Banks Fell by 11 pp to 30% in 2021

NPL Ratio of Banks Fell by 11 pp to 30% in 2021

Ukrainian banks’ NPLs declined in volume by UAH 85.2 billion in 2021. NPLs as a share of the loan portfolio decreased by 11 pp for the year, to 30% on 1 January 2022 from 41% on 1 January 2021. This result is the best since the beginning of 2017, when the new NPL calculation methodology took effect.

The quality of loan portfolios improved for all groups of banks. Specifically, the NPL ratios of banks in foreign banking groups (excluding Russian banks) and banks with private capital have already fallen below 10%. The NBU Strategy sets this level as a banking sector target until the end of 2024.

State-owned banks reduced their NPLs the most – by UAH 56.2 billion – which is almost two-thirds of the banking sector’s overall decrease in NPLs. As a result, the NPL ratio of state-owned banks shrank to 47.1% from 57.4% over the course of the year. At the same time, these banks still account for more than 70% of the total NPL portfolio. State-owned banks continue to pursue their NPL reduction plans approved by the Financial Stability Council.  This is a prerequisite for increasing their appeal to investors and one of the structural benchmarks under the IMF’s cooperation program with Ukraine.

The NPL coverage ratio (total loan loss provisions to NPLs) stood at 102% as of the end of 2021.

“In 2021, banks achieved the most significant reduction in the NPL ratio in recent years by writing off provisioned NPLs and scaling up lending. The further effective resolution of NPLs requires that relevant authorities work together to improve applicable laws, introduce the institution of securitization of impaired assets, establish infrastructure for a secondary market for NPLs, and more. The implementation of these initiatives, along with the expansion of the new high-quality loan portfolio, will allow banks to gradually reduce their NPL ratios to their targets,” said NBU Governor Kyrylo Shevchenko.

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