Ukraine’s Bank Sector Slowing Down

The Ukrainian banking Sector is slowing down, according to Roman Lysyuk, international sales specialist with Sokrat investment group.

According to the National Bank of Ukraine, Ukrainian banks’ assets increased by only 7.8 percent in the first quarter compared with 11.2 percent growth during the same period of 2007. “The situation may become worse in the next few months,” Lysyuk said. “There are two basic factors that have caused the slowdown. The first is that there’s a liquidity crisis on the world financial market which has made Western loans very scarce for the Ukrainian banks. The second factor is that the NBU and the government are trying to curb inflation by creating a hryvnia deficit and reducing the amount of money in circulation.”

“Today, most banks continue to give loans to the population. But when it comes to lending businesses, only those borrowers who have a long credit history with a bank are considered. Also, agricultural enterprises which were the most important borrowers for banks like Raiffeisen Bank Aval, will not be able to get the necessary loans in the second and third quarters. So, the growth of banking assets will slow down, and banks’ profits will most likely drop. Another important reason that makes loans increasingly scarce is the fact that public structures are pouring less money into the economy, because of the government regulations called to curb the inflation,” the expert said.

Lysyuk said that he saw no chance for the situation to improve in the short-term. “The world financial crisis, which has affected the Ukrainian stock market, will continue until summer and may go even longer. If the crisis on the sub-prime market – which initially caused the present woes of the world market – continues to worsen in the second quarter, the situation may become even more aggravated. The government and the NBU will continue their fight with the inflation that has reached 9.7 percent in the first three months of 2008. Banks are denied refinancing more and more often, and they are forced to limit the amount of loans to the population and especially to businesses. The state plans to toughen the terms of its consumer lending by increasing the amount of bank reserves for consumer loans to 80 percent or even 100 percent. Such steps would be completely justified, because the percentage of bad consumer loans is very high. In some banks, it may reach as much as 55 or 60 percent. And many banks have been boosting their assets precisely through consumer loans. That’s why it’s easy to forecast that the growth of banking assets will slow, dropping to some 45 or 50 percent this year,” Lysyuk concluded.

UNIAN reference: According to the NBU, in 2007 Ukrainian banks saw their assets soar by 264.5 billion hryvnias, or 74.9 percent, to 617.6 billion hryvnias.

The total amount loaned by banks increased by 216.7 billion hryvnias, or 80.3 percent. Loans to business enterprises grew 108.5 billion hryvnias, or 64.7 percent, and loans to private individuals rose 75.9 billion hryvnias, or 97.6 percent.

Banking assets were structured as follows: highly liquid assets constituted 10.3 percent, credit operations amounted to 78.8 percent, investments in securities made up 4.7 percent, accounts receivable amounted to 4.5 percent, accrued profit, to 0.9 percent, and other assets, to 0.9 percent.