Due to a full-scale war and the deterioration of bank asset quality, the non-performing loans (NPL) rate has been worsening for 14 consecutive months. As of March 1, 2022, the share of NPL in the credit portfolio was 26.6%. During the war, the volume of non-performing loans increased by 43% (+130 billion UAH).
This was reported by Danylo Hetmansev, Chairman of the Committee of the Verkhovna Rada of Ukraine on Finance, Taxation, and Customs Policy.
"Thus, the trend towards the growth of non-performing loans remains, although in 2023 this process noticeably slowed down. Recognition of NPLs by banks will accelerate after the completion of the diagnosis of asset quality and capital adequacy of the top 20 banks by the NBU. It is expected that the share of NPLs could reach up to 50% (30% of the current credit portfolio at the beginning of the war)," he noted.
It is noted that the current financial indicators of the sector are adequate to "digest" the expected growth of non-performing loans: the regulatory capital adequacy ratio as of May 1 is 21%, and the banks' profit for the first 4 months of 2023 is +44 billion UAH.
According to Hetmansev, provisions for possible loan losses amount to 107 billion UAH (as of April 1). Cleaning up "problem" assets of banks and significantly increasing lending are two key tasks that will face banks, banking regulator, and the financial authority of the country after the end of the war.
Full-scale recovery will require greater involvement of banks in reconstruction and an increase in the credit portfolio to GDP. Such a level was noticeably lower than in neighbouring EU countries even before the war (according to World Bank data, in 2021 in Lithuania – 37.5%, Poland – 46.4%, Czech Republic – 53.7%, while in Ukraine 23.5% of GDP), he concluded.
Background. Mind previously reported that Ukraine's international reserves had increased by 4% in May, to $37.3 billion.