Banking sector of Ukraine is one of the “hot topics” for Ukraine today. It is an indicator of current situation in the country, reflecting progress with the reforms in general, and those aimed at improvement of banking sector in particular. Starting with devaluation of Ukrainian currency and ending with outflows of capital, banks faced situation, in many ways resembling post-recession period of 2009-2010. Banks with foreign capital were the ones that were able to withstand difficulties in the first place, others faced loss of National Bank of Ukraine (NBU) license. Out of 180 banks in Ukraine, with license from NBU, there are 167 left as of November 30, 2014, according to official data, provided by NBU. Several others have temporary administration working in the banks.

Just as after 2008 recession, banks are facing rise in non-performing loans (NPLs). There are several reasons that cause such situation. First, it is devaluation of Ukrainian currency – by approximately 100% since the beginning of 2014. Since large share of loans were provided in foreign currency (especially car loans), it is natural that share of population faced increase in interest payments, which was a big issue. Second reason is inflation increase. Rising prices for most of the product groups in Ukraine was followed by more than moderate growth of average income per capita. Third, outflow of capital from the country led to increase in unemployment, which also affected population’s ability to make money, ergo repay debt. NBU suggests 11.5% of non-performing loans on the average for Ukrainian banks as an official number, while other experts suggest approximately 17% of NPLs.

These facts and conclusions bring us to our final point: performance in banking sector of Ukraine in 2014 is based on liquidity of the banks, rather than financial results. Lower number of banks in the country inevitably lead to decline in cash and precious metals within banking sector, however their share in total assets remained at approximately similar level of 2.32% in comparison to the level of 2013, where share reached 2.85%.

Finally, we can see negative return on assets and return on capital for Ukrainian banks as of November 30, 2014, as major decline happened exactly over the past year. It is vital to note that it had not been as critical as the decline of post-recession period, however crisis in Ukraine is not over yet. Lack of trust in banking system by the population of Ukraine is another major issue that still has to be tackled.

UkrAgroConsult