Ukraine’s banking system has posted a net profit of UAH 14.7bn ($545m) in January 2023, more than double the figure from the same month in 2022, according to Danylo Hetmantsev, Chairman of the Parliamentary Committee on Finance, Taxation and Customs Policy. It is also 3.6 times higher than the profit recorded in January 2021, the highest in the sector’s history.
Reduction in provisioning boosts profits
The reduction in provisioning to UAH 2.5bn, compared to almost UAH 10bn per month on average in 2022, has helped to boost the sector’s profits. The trend of a slowdown in loan impairment charges and the dissolution of provisions for other assets continued from the fourth quarter of last year, suggesting that banks are making additional provisions for possible losses, but the process of recognizing non-performing loans has stabilized in recent months. Hetmantsev stated that the profit has helped improve the regulatory capital adequacy ratio (H2 of at least 10%) to 19.84% as of 1 February, the highest since the beginning of the war and since 2021 in general.
Tighter reserve policy may lead to a decline in profits
Hetmantsev believes that the National Bank of Ukraine’s (NBU) tighter reserve policy may lead to a slowdown in interest income growth and a corresponding decline in bank profits. He added that the NBU’s stress tests, one of the main points of the upcoming loan program with the International Monetary Fund, may increase the share of problem/non-performing assets, requiring a revaluation of reserves and capitalization. However, he is confident that the current level of operating profitability and net profit, combined with business models adapted to the war, creates a sufficient safety margin for the majority of banks to manage increased credit risks and remain stable. Hetmantsev also expects the economic recovery to translate into increased lending to the economy.
In conclusion, Ukraine’s banking sector has reported significant profits in January 2023, which is a positive sign for the country’s economy. However, challenges lie ahead, such as the NBU’s stress tests, tighter reserve policy and the potential for a decline in bank profits. Nevertheless, Hetmantsev remains optimistic that the sector is well-positioned to manage increased credit risks and remain stable.
