Interest rates on loans for households three times higher than those for businesses

The National Bank of Ukraine (NBU) says the average rates on hryvnia loans for businesses in the third quarter of 2020 (Q3) decreased by 1 percentage point (pp) to 9.6% per annum, while those on loans for households dropped by 1.9 pp, to 30.9% per annum.

That is according to the regulator's November review of the banking sector published on the NBU website on November 11.

The portfolio of net households loans in hryvnias grew by 3.9% in Q3 year-over-year (y-o-y).

At the same time, the portfolio of net businesses loans in hryvnias (portfolio excluding reserves) increased by 3% in Q3 y-o-y.

Read alsoDates of IMF mission's visit to Ukraine to be known after number of issues resolvedIn Q3 2020, for the first time in recent years, net hryvnia loans for the acquisition, construction and reconstruction of real estate (up by 6.9% from Q2) grew faster than the portfolio as a whole.

Non-performing loans

The share of non-performing loans was 45.6% in the loan portfolio, having decreased by 2.9% during the financial quarter due to the write-off of fully reserved debt on the balance sheets, for which banks do not expect receipts.

Deposits

In Q3 2020, bank deposits of households and businesses continued to grow, although households' hryvnia deposits grew by a mere 1.2% (+ 27.1% y-o-y) in July-September, which is significantly lower than in Q2 2020 (by 10.9%). Households' foreign currency deposits in the U.S. dollar equivalent in Q3 2020 grew by 1.3% from Q2 and by 5.3% y-o-y.

Banks' profit

Ukrainian banks in January-September 2020 posted UAH 37.6 billion (US$1.3 billion) in net profit. The main reason behind the lower financial performance (down by 22.2% y-o-y) is the formation of reserves for expected losses. The growth rate of the banks' net commission and interest income was the lowest in the last four years.

The main factor of uncertainty for banks' financial result remains the amount of allocations to reserves for impairment of the loan portfolio quality. Banks still have to make a correct credit risk assessment based on current macroeconomic forecasts and reflect the expected losses in the financial statements, the regulator said.

Mortgage

According to the NBU, the volume of mortgage lending in Ukraine in the first nine months of 2020 grew by 16% to UAH 2.3 billion (US$81.7 million) due to the increase in the average loan amount.

Monetary policy easing

The National Bank continued easing its monetary policy, cutting the key rate to 6% per annum effective June 12.

Read alsoConsumer inflation accelerates on weaker hryvnia – National BankUkrainian banks' net profit grew by 23.6% in January-May 2020 year-on-year, to UAH 28.964 billion (US$1 billion).

On June 24, 2020, First Deputy Governor of the NBU Kateryna Rozhkova said tamed inflation, stability of foreign exchange market, and failure-free operation of the banking sector promoted a further decrease in interest rates for households and businesses, which might be record low over Ukraine's independence by the end of the year.