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In Q1 Banks Reported UAH 160 Million in Losses due to Provisioning for Expected Losses from War

In Q1 Banks Reported UAH 160 Million in Losses due to Provisioning for Expected Losses from War

In January–March 2022, banks reported UAH 0.16 billion in losses due to a net loss of UAH 10.07 billion incurred in March. As previously reported, the net profit of the banking sector in January–February was UAH 9.91 billion. 

Since russia launched a full-scale war against Ukraine, banks have introduced loan repayment holidays and reduced fees for their services. This has negatively affected the interest and commission income of financial institutions. In March, the growth in net interest income of banks decelerated significantly, to 17% yoy, down from January–February, when this increase sped to 35% yoy. In Q1, net commission income fell by 13% due to the decline by 58% in March. 

However, banks’ operating performance remained positive: net operating income before provisioning was UAH 22.23 billion in Q1, up from UAH 13.69 billion in Q1 2021.

The loss seen in Q1 is attributed to large  loss provisions due to the war: banks raised UAH 21.57 billion in loss provisions in Q1, including UAH 15.86 billion in March alone. 

The general slump in economic activity and a fall in demand for loans and banking services will continue to have an adverse impact on banks’ profitability. Credit risk losses are expected to rise in view of the gradual effects of the economic crisis on borrowers’ activity. The impact of the war can therefore only be assessed over time. 

The NBU welcomes the proper recognition of financial indicators by banks, being convinced that it is critical to understand the real situation in banks to maintain financial stability in the banking sector. 

"It is very important for the NBU to see the real situation in the banking system. Whatever the fallout from the war, we urge the banks not to conceal their losses by "cooking the books". Without grasping the full scale of the damage, we will not be able to implement an effective rehabilitation of the banking system after Ukraine wins the war. The banking system has a margin of safety to help it absorb temporary negative consequences of the war. At the same time, if required, financial institutions will have time to restore their financial stability," said NBU Deputy Governor Yaroslav Matuzka.

As of 1 April 2022, 44 banks out of 69 solvent banks were profitable, with net profits reaching UAH 5.85 billion. Meanwhile, 25 banks reported UAH 6.01 billion in losses.

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