Ukraine's banking sector could return to marginal profitability in 2018, although still-high funding costs and impairment charges along with weak loan growth will continue to disrupt any improvement. Profitability remains weaker than in other CIS and CEE countries. This was reported by the international rating agency Fitch Ratings.
“The sector last made a full-year profit in 2013, but return on average equity narrowed to -2.7% in 9M17 from -132% in 2016, largely due to a sharp fall in impairment charges. The sector result excluding insolvent banks was already positive in 9M17 as banks returned to marginal loan growth following a period of deleveraging. Profitability should improve further in 2018 due to falling funding costs and a pick-up in GDP growth,” the message says.
However, loan growth next year is likely to be in single digits. Credit is still expensive, particularly for retail borrowers, and the number of borrowers of reasonable quality is also limited. The large stock of legacy problem assets, still large provisioning needs and moderate capital buffers are additional constraints on credit growth and performance, according to the agency.
Most of the new capital that has entered the sector in the last four years has been channelled to state- and foreign-owned banks, and we believe such support would be likely to continue, if needed. Government-controlled lenders account for more than half of sector assets following PrivatBank's nationalisation late last year. Privat is receiving additional capital support to fully reserve problem assets, although the associated additional impairment provisions in 4Q17 are likely to keep the sector loss-making for the full year.
The number of Ukrainian banks has already halved during the clean-up and recapitalisation, but the still large number of small and weakly capitalised banks makes further consolidation likely.
As it was reported earlier President of Ukraine Petro Poroshenko signed the law of Ukraine "On the ratification of the financial agreement (the Higher Education of Ukraine project) between Ukraine and the European Investment Bank". The agreement was signed on December 19, 2016.
According to the project "Higher Education of Ukraine", 10 million euros will be allocated to the EIB funds from the fund of the Eastern European partnership in the field of energy efficiency and ecology. In addition, the project will allocate 30 million euros from the Northern Ecological Finance Corporation. From the Ukrainian side, it is planned to co-finance the project, in particular taxes and customs payments.