Moody's: Outlook for Ukraine's banking system remains negative
2011-11-29 12:13:29
The outlook on Ukraine's banking system remains negative, Moody's Investors Service has said in a statement.
The outlook, which captures the credit conditions that the banks will face over the next 12-18 months, is negative due to an operating environment characterized by a modest economic recovery after a very deep recession; weak profitability; a very high volume of non-performing loans, with a substantial overhang of FX loans; and the limited availability of local-currency funding, prompting the banks to deleverage.
The statement says that the slowdown in the global recovery will likely squeeze demand for commodities, including Ukrainian exports such as steel and other metals. Moody's believes that this will cause GDP growth to decelerate from 4.5% in real terms in 2011, to 4% in 2012.
At the same time, credit growth is likely to remain subdued -- particularly in the retail segment -- due to the slow recovery in consumption.
Moody's also said that due to the weak credit environment and slow consumption, banks' profitability metrics are unlikely to recover in 2011-2012, as they retain high portions of non-performing assets on their balance sheets.
The agency's analysts said that problem loan levels within the system remain high, including a sizable overhang of non-performing FX loans. Although further growth of non-performing assets is unlikely, progress in the recovery of problem loans has been sluggish, which raises questions about the adequacy of provisioning coverage over the outlook horizon. At the same time, Moody's says that the banks have been able to maintain relatively comfortable capitalization levels, due to timely capital injections from the foreign and private shareholders (as well as several bank bail-outs).
The various deleveraging strategies of foreign-owned banks have led to a decrease in wholesale market and parental funding, which represented almost 30% of non-equity funding as of 1 July 2011, down from over 40% as of year-end 2008. This generated an improvement in the loans-to-deposits ratio to 160% in H1 2011 from over 250%, as at year-end 2008. Further improvements in this area are unlikely, as deposit growth has slowed materially in Q3 2011 and Moody's says that this trend will likely continue in 2012, driven by weakening depositor confidence.
Notwithstanding the negative system outlook, most Ukrainian bank ratings carry stable outlooks. The low level of the banks' ratings (both standalone and deposit) reflects many of the challenges that also drive the negative banking system outlook. If mounting global uncertainties adversely affect depositor confidence or the export-dependent Ukrainian economy beyond what is anticipated, bank ratings could come under pressure.