- Starting from 1 February 2017, NPLs are determined in accordance with the NBU Board Resolution No. 351 of 30 June 2016. NPLs are the defaulted loans. The default is determined by the fact of payments on the asset past due 90+ days, or the inability of the borrower to repay the debt without repossession of collateral.
- From 1 January 2013 NPLs are determined in accordance with the NBU Board Resolution No. 23 of 25 January 2012. Non-performing exposures (previously defined as negatively classified assets) were determined as exposures with payments past due 90+ days; individual exposures past due 30+ days with low counterparty financial class (the last two of the five quality categories).
- Starting from 1 January 2001, NPLs are determined in accordance with the NBU Board Resolution No 279 of 6 July 2000. Loans classified as "doubtful" or "bad" are determined as negatively classified loans. Negatively classified loans are loans for which debt service is at high risk (taking into account the borrower’s financial condition and the quality of the collateral), and the likelihood of full repayment of the outstanding debt is low or practically negligible.
The NPL ratio has been declining gradually since 2018. In 2021, banks achieved the most significant reduction in the NPL ratio in recent years – by 11 pp, to 30% as of 1 January 2022, down from 41% as of 1 January 2021 – by writing off provisioned NPLs and scaling up lending. This result is the best since the start of 2017, when the new NPL calculation methodology took effect.
Loan portfolio quality improved across all bank groups. 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 almost two-thirds of the banking sector’s overall NPL reduction. As a result, the NPL ratio of state-owned banks shrank to 47.1% from 57.4% over the course of the year. However, it remains a burden for state-owned banks, which still hold more than 70% of the sector’s NPLs (with over 50% held by PrivatBank alone).
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.
Such a high NPL ratio is a result of the lending expansion seen in previous years, when borrower assessment standards were low, and creditor rights were not properly safeguarded. Another major reason was the practice of related-party lending. Related parties stopped servicing their loans during the crisis.
As of now, banks have recognized all of their NPLs. Provisioning has been rising continuously and exceeds 100%. As a result, NPLs are not putting pressure on banks’ profitability or capital.
The NBU has called for banks to be more active in cleaning up their balance sheets: NPLs must be restructured, sold, or written off.
The Regulation On Defining Criteria for Writing Off Impaired Financial Assets of Banks Through Expected Credit Losses was approved by NBU Board Resolution No. 49 dated 13 April 2020.
- An Asset Quality Review (AQR) of banks held by the NBU, which prompted banks to recognize significant volumes of loans as non-performing.
- Introduction of a more stringent definition of "non-performing loan (NPLs)" term in accordance with best international practices (NBU Board Resolution No. 351).
- Recognition of NPLs by PrivatBank after its nationalization.
The NPLs data has been published on the website of the National Bank of Ukraine since September 2017. Prior to that, disclosure of NPLs data accompanied the banksʼ quarterly financial statements.
1. Monthly from 1 September 2017 on the official website of the National Bank of Ukraine according to:
- On establishing a list of information subject to mandatory disclosure by banks of Ukraine (NBU Board Resolution No 11, of 15 February 2018);
- On publication of certain information on the activities of Ukrainian banks (NBU Board Resolution No 85 dated 31 August 2017).
2. On a quarterly basis, from 1 January 2012, banks are required to publish interim financial statements (including the Note "Certain Bank Performance Indicators" with data on loans by quality categories) by posting on the Bank’s website according to:
- Guidelines on the procedure of preparation and disclosure of the financial statements of Ukrainian banks (NBU Board Resolution No 373 of 24 October 2011).
3. On a quarterly basis, since 1 April 2005, banks are required to publish quarterly financial statements (including the Note "Certain Bank Performance Indicators" with indication of loans by risk categories) in the newspaper of Cabinet of Ministers of Ukraine, "Government Courier", or the parliament’s (Verkhovna Rada of Ukraine) "Voice of Ukraine" according to:
- Guidelines on the procedure of preparation and disclosure of financial statements of Ukrainian banks (NBU Board Resolution No 480 of 27 December 2007);
- Guidelines on the procedure for preparation and disclosure of financial statements of Ukrainian banks (NBU Board Resolution No 598 of 7 December 2004).