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Lending Growth Speeds Up Significantly, Return on Equity Improves – Banking Sector Review

Lending Growth Speeds Up Significantly, Return on Equity Improves – Banking Sector Review

Lending growth in the banking sector accelerated significantly in Q2 2021 (hereinafter Q2), in particular in the corporate, mortgage, and consumer segments. Customer deposit dynamics remained positive. This increase was driven by demand deposits, and their share in customer deposits continued to expand.

The sector’s profit in Q2 more than doubled in annual terms. The pace of growth in net interest income reached a decade high. Net fee and commission income also surged. At the same time, provisioning fell by half in annual terms.

Banks maintained acceptable loan portfolio quality and assessed their credit risks adequately, early data from an asset quality review have shown. 

This is according to the latest Banking Sector Review published by the NBU.

Bank lending revived, especially retail loans

The growth in net hryvnia loan portfolios in the corporate segment accelerated significantly, to 14.9% in Q2, up from 5.3% in Q1. In annual terms, they surged by almost 30%, an eight-year high. 

The growth rate of consumer lending is returning to the pre-crisis level. Net hryvnia retail loans grew in volume by 8.7% qoq and 23.8% yoy. Mortgages climbed by 16.0% qoq and 41.7% yoy, continuing to outpace consumer lending.

The NPL ratio in Q2 shrank by 2.8 pp, to 37.2%, as banks ramped up lending and wrote off NPLs.

Demand deposits outstripped growth in term deposits, while dollarization of deposits declined

Hryvnia retail deposits continued to grow in Q2, up 5.5% qoq (18.0% yoy), driven by the growth in demand deposits, while hryvnia term deposits inched marginally higher.

Hryvnia corporate deposits climbed by 4.8% qoq and 34.9% yoy. With the hryvnia component of the funding base expanding faster than before, the dollarization of customer deposits declined by 1.7 pp in Q2, to 36.7%, as the growth in hryvnia retail and corporate deposits accelerated.

Sector profitability increased, with provisioning going back to precrisis levels

The banking sector in Q2 posted profits of UAH 19.1 billion, 2.5 times the level of Q2 2020. Return on equity rose to 29% from 23% last year. This gain was driven by a significant reduction in provisions and by rapid growth in operating income.  Against the backdrop of the crisis-hit Q2 2020, net interest income and net commission income were up by about 40% yoy, propelled higher by cheaper funding, the recovery in consumer lending, and the growth in cashless transactions with households.

Although macroeconomic threats are weakening, banks should maintain proper risk assessment. While an asset quality review is still underway, its first findings indicate that financial institutions are paying sufficient attention to the quality of the loan portfolio and are assessing credit risks adequately. 

For reference:

The loans and deposits data published in the Banking Sector Review differs from the corresponding information posted in the Monetary Statistics section of the NBU’s official website, because the former:

  • contains data on the banks that were solvent as of the reporting date unless stated otherwise
  • includes data from bank branches operating abroad
  • contains data on deposits in other resident and nonresident banks
  • has been adjusted for loan loss provisions unless stated otherwise
  • contains data on personal certificates of deposit unless stated otherwise
  • contains information on nonresident customers.

 

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