"Conditions in the financial sector have improved but further recovery will be slow due to high credit risk. We view positively the withdrawal of 80 banking licenses due to a lack of transparency regarding ownership structure," it said in a recent research update on Ukraine.
According to the rating agency, a key negative factor is the high level of nonperforming loans (NPLs) within the sector.
S&P Global Ratings classifies Ukraine's banking sector in group '10' ('1' being the lowest risk, and '10' the highest) under the rating agency's Banking Industry Country Risk Assessment (BICRA) methodology.
"Recapitalization of the largest banks operating in Ukraine, led by newly reformed and more prudent stress tests by the central bank, is in process. Deposit outflows have largely stopped and there is some small growth in hryvnia deposits which we expect to continue," the agency said in the update.
Read alsoNBU declares another bank insolventIt says that while liquidity in the banking sector has largely improved, legacy issues pertaining to related party lending presents a serious risk to some large systemic banks, and hence the broader system.
"The authorities' ability to save any such bad banks remains uncertain," the rating agency said.
UNIAN memo. The National Bank of Ukraine has withdrawn banking licenses from over 80 banks since the beginning of 2014 when it launched the clean-up of the country's banking system. The insolvent banks were transferred to the Deposit Guarantee Fund. The Fund has paid over UAH 80 billion in compensation to bank depositors over the period under review.