S&P Global Ratings says it classifies Ukraine's banking sector in group '10' under its Banking Industry Country Risk Assessment (BICRA).
"We classify the banking sector of Ukraine (B/Stable/B; national scale rating: 'uaA') in group '10' under our Banking Industry Country Risk Assessment," it said in a statement.
It says that in accordance with the BICRA, countries are divided into groups depending on the level of risks of their banking sectors – from group '1' (countries with the lowest risks) to group '10' (countries with the highest risks). Along with Ukraine, BICRA Group 10 includes the Republic of Belarus, Tunisia, Sri Lanka, and Nigeria.
The agency listed key factors that determine the risks of the banking sector in Ukraine, referring to the positive ones as the higher quality of banking supervision and regulation and a relatively high level of predictability; a stable funding profile, as well as the adoption of a law on banks and banking activities.
On the negative side, S&P noted a very low quality of assets, especially in state-owned banks; low indicators of the population's well-being in the international context, as well as a low level of corporate governance and transparency due to a significant share of the shadow economy and widespread corruption.
"Economic risk in the Ukrainian banking system is very high in a global comparison. We expect Ukraine's GDP to contract by about 6% in 2020 due to COVID-19 containment measures, and to expand by an average 3.3% in 2021-2023 supported by domestic demand. In our view, the Ukrainian economy continues to be in a prolonged correction phase," S&P said.
"We think industry risk for banks in Ukraine has reduced over the past five years but remains very high in global terms. We believe that banking regulation and supervision have strengthened over the past five years under the management of the new governors of the National Bank of Ukraine (NBU). The NBU is striving to preserve its independence despite political pressure and harmonize the regulatory framework with EU standards," it said.