The NBU downgraded its assessment of problem loans of banks from 20% to 30%
Banks have already suffered significant credit losses, but not all realised and expected credit losses have been recognised
What happened? The National Bank of Ukraine (NBU) has downgraded its own assessment of problem loans of banks from 20% to 30%.
Source. Statement of the regulatory authority.
Details. “About 20% of the loan portfolio has already been recognised as non-performing or is at risk – this is comparable to the June estimates of the NBU... Currently, there are grounds for deterioration of the loan portfolio quality forecast – if the current problems in the energy sector persist, the share of losses may reach 30%,” the NBU says.
The net loan portfolio of banks is declining, slowly for business loans and rapidly in the retail segment, the report states.
“The reason for the reduction is the formation of loan provisions, as well as repayment of previously issued loans, which is not compensated by new loans. The drop in economic activity due to disruptions in electricity supply and depressed consumer demand further reduce the demand for lending,” the NBU explains.
It is noted that problems with electricity supply will worsen the performance of even those enterprises that have been servicing loans on time until now. Moreover, household income and operating cash flows of businesses in many cases will be insufficient to fully service loans.
The NBU states that the banking system as a whole “has remained highly liquid since the beginning of the full-scale war, and by some indicators liquidity has reached record levels.” The banking sector “continues to generate significant operating profits”, which create “the first line of defence for financial institutions to absorb credit losses”, the National Bank adds.
“During the year, most banks were able to optimise administrative costs. Therefore, despite significant credit losses, the sector remained generally profitable, and its return on equity for 11 months was more than 9%,” the regulatory authority says.
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