Ukrainian banks should merge to survive crisis-S&P
Most Ukrainian banks need additional capital
Most Ukrainian banks need additional capital to withstand the effects of the global financial crisis and the best way may be through consolidation in the sector, a Standard & Poor`s analyst said on Monday, Reuters reported.
Yekaterina Trofimova, S&P`s analyst for banks in the former Soviet Union, said the credit crunch had left Ukrainian banks in the lurch, and the central bank had limited means to help because of the conditions for its $16.4 billion IMF loan.
The majority of banks in Ukraine need additional capital either linked to the fact that their real economic capital is already negative, or because the quality of their assets is deteriorating," Trofimova told Reuters.
She did not state the banks that S&P considers to be struggling, or how much recapitalisation the sector needed.
"Mergers among banks could be one of the ways of solving the problem of a lack of capital, but we have not seen any active moves for such deals, particularly from solid banks," she said.
The lack of mergers was linked to "uncertainty over the market, uncertainty in the future and fears of skeletons in the cupboard, including hidden costs which often occur after a merger or acquisition", she said.
There are more than 180 banks in Ukraine, the sector experiencing rapid growth in recent years, although no single bank has more than 10 percent market share.
Foreign lending helped credit sector to develop, with Ukrainians borrowing for the first time in their lives to buy homes and cars.
Banks` lending portfolios rose more than 70 percent in 2008. Foreign currency lending amounts to 59 percent of all credit, up from 50 percent at the start of 2008, and is worth 433.8 billion hryvnias ($56 billion), central bank data showed.
Many Ukrainians borrowed in dollars, because interest rates were lower than hryvnia-denominated loans as inflation soared. The strategy backfired when the hryvnia fell sharply in the last four months of 2008, making the loans far more expensive.
Now there are fears of default.
"Careless decisions were made when the number of new credits (lending) was on the rise. The economy, after a long period of free access to sources of credit, cannot adapt quickly to their almost total curtailment," Trofimova said.
"We believe more than 20 percent of loans have signs of problems and that number is still rising," she said.
S&P cut Ukraine`s rating to B from B+ in October because it was concerned about recapitalisation.
At Jan. 1, 2009, 184 banks were operating in Ukraine with a total capitalisation of 121.4 billion hryvnias ($16 billion) and assets worth 972 billion hryvnias ($126 billion).
Ukraine`s largest bank is privately owned Privatbank, followed by Raiffeisen Bank Aval, belonging to Raiffeisen, UkrSibbank, majority owned by BNP Paribas and Ukrsotsbank, owned by UniCredit.
The country`s No.5 bank, Prominvestbank, was bought by Russian state-controlled VEB bank after spending several months in receivership. Officials said a run on its deposits in October was unconnected to the financial crisis.
Last week, the country`s No. 15 bank, Ukrprombank, was also placed in receivership.