Moody’s Investors Service has upgraded its outlook for the Ukrainian banking system from stable to positive in order to reflect the organization’s expectation that the country’s banks will improve their cumulative creditworthiness within the period of the next 12-18 months. Such improvements are expected to be facilitated by better asset quality, as well as a return to profit-making operations, the agency’s official website reports.
Such analysis has been included in the rating agency’s report “Banking System Outlook – Ukraine – Improving asset quality and profitability drive positive outlook,”, which is now available on www.moodys.com. According to the agency itself, the research is an update to the markets and does not constitute a rating action.
“The Ukrainian economy is expected to keep gradually recovering, which would, in turn, stimulate credit demand, while simultaneously improving borrowers’ capacity to pay back their loans,” explained Lev Dorf, an analyst at Moody’s Investors Service. He went on to say that Ukrainian banks have recognized the majority of their non-performing loans. Also, the analyst expects provisioning charges to go down as well, which would increase profits made by the financial institutions.
The rating agency anticipates Ukraine to add some 3.5% to its gross domestic product in the current year, after having grown by 2.5% in 2017 amid the continuing recovery in investment. The increased investment obviously tends to bolster the banks’ operating environment. The higher pace of economic expansion is likely to be followed by a prolonged period of credit expansion. The agency anticipates the loan growth to strengthen to a nominal 10% over the upcoming two years, from circa 7% exhibited last year.
Bad loans are likely to decline from the unusually high levels within the next two years due to a combination of loan restructuring and write-offs. The quality of newly issued loans, on the other hand, is going to be supported by the better economic conditions on the national market.
The agency sums up its report with a forecast that the Ukrainian banking system will go back to profit-making this year after four straight years of recording losses. Despite the fact that around 75% of Ukrainian banks made profits in 2017, the banking sector as a whole made a net loss last year. The trend was primarily caused by the high provisioning changes at Privatbank, which made up 90% of the bank system’s losses by the end of 2017.