At first glance, it might seem that the growth in lending to the population is associated with the deplorable financial condition of Ukrainians: they need to get funds in order to somehow make ends meet. However, it is not. If the growth of loan delinquencies indicates a decline in the welfare of the population, then the active issuance of loans to the population by banks may mean the confidence of financial organizations in the growth of the solvency of Ukrainians.
In this case, does the data of the National Bank mean that Ukrainians have finally become richer and that a "financial thaw" has finally begun in the banking sector? Is there a boom in microfinance services? Will it be easier to get a loan in 2021 than in 2020, and is it worth waiting for a "bankruptcy" due to the pandemic?
Income of Ukrainians and their loans
Financial analysts agree that positive assessments of banks regarding the return of funds from borrowers indicate an increase in the welfare of the population. According to CBR, a bank loan is most often used to pay for a large purchase or to develop a business.
"Financial organizations more often lend to individuals than to legal entities. The share of consumer loans has grown, from which it can be concluded that the welfare of citizens has increased. People have begun to assess their incomes more positively, understand that they can repay loans, so they take them. Indirectly, this can mean that the paying capacity of the population has become higher," Ruslan Chorny, managing partner of the Financial Club told 112.ua.
According to the National Bank, during the quarantine period, citizens took fewer loans. This came as no surprise: even at the beginning of the quarantine, the Chamber of Commerce and Industry recorded that every fourth entrepreneur closed his business, so the demand for loans fell.
Actually, like the proposal. Nearly one in three entrepreneurs surveyed by the Independent Association of Banks has experienced loan delays through various channels. Every second business has such experience with long-term loans. The volume of new loans issued decreased due to the increased risk of defaults. The selection of clients has become more stringent. Banks were forced to refuse lending without collateral, some for the period of quarantine reduced credit limits on customer cards.
In April, the number of refusals for new loans increased by 30-45%. Ukrgasbank, for example, imposed restrictions on the size of the minimum own contribution and slightly increased interest rates, limited the issuance of new mortgage loans.
And only in the second half of May, when tough quarantine restrictions ended, the growth of lending began. The number of refusals in loans decreased by 5-10%. Demand also began to recover, especially for consumer loans.
Lending trends coincide with the data of the State Statistics Service regarding the growth of savings of Ukrainians. “We are seeing a drop in the savings of Ukrainians, then a slight recovery. This is the effect of a rebound from the crisis. People are trying to replenish their reserves, which they spent in the first half of the year after the lockdown,” says financial analyst Oleksiy Kushch in a comment for 112.ua.
However, the expert does not consider this effect to be a symptom of improving the ability to pay. In his opinion, people are increasing their savings in anticipation of the worsening crisis: they are trying to form a new reserve by reducing consumption.
What is the reason for the "credit thaw"
The expert restrainedly comments on the growth of consumer lending. According to Oleksiy Kushch, in fact, we have not yet encountered real growth, but fluctuations in the exchange rate lead to current trends.
"The hryvnia has devalued by 20% against the dollar over the past year. Accordingly, foreign currency loans in hryvnia have increased. Here the exchange rate difference shows the growth of the loan portfolio. If we remove the exchange rate difference, and also forget about the state lending program due to which loans were "pushed" administratively, there is practically no real growth in market lending. Loans are issued within the limits of the amounts that borrowers repay. There is a slight increase in consumer lending, but we have it every year ", the expert emphasizes.
Ruslan Chorny is convinced that although the pace of implementation of the program turned out to be much lower than the declared one, it still had a positive effect on the sector, since interest rates on loans went down even under non-state programs. The discount rate of the National Bank last year was reduced to a phenomenal 6%, which stimulated the availability of loans for people and the growth of demand for them. Also last year, about 18 thousand mortgage loans were issued, while in 2019 - up to 7 thousand. The increase more than doubled last year thanks to government programs.
The expert is also confident: despite the growth in lending in the third quarter, in general over the year we will inevitably see a decline in comparison with 2019, primarily due to a decrease in lending to legal entities.
In addition to the fact that during the strict quarantine, Ukrainians began to take new loans less often as expected, the level of delinquencies for existing loans increased. If back in March overdue more than a week in hryvnia loans was 19.1%, then in May - 24%.
If we proceed from the data of the Ukrainian Bureau of Credit Histories, the overall level of delinquencies in the first quarter was 20%, and in May it increased to 41%. This is due, first of all, to the abolition by the state of the accrual of penalties for late payment. The lender was actually deprived of the financial leverage on defaulters, and he had no choice but to influence the borrower with a word. Users of social networks talked about the activation of collectors: in the conditions of quarantine, they began to act with greater intensity.
However, the growth in non-payments on consumer loans can be called moderate. The disaster did not happen, in particular, because the "credit holidays" offered by the government did not become a mass phenomenon. The client needed to reasonably prove to the bank that his income had decreased, for example, due to the stoppage of the work of the enterprise where he works, or his own business.
Not all banks, which declared their participation in the program, actually provided the opportunity for a "credit vacation". For example, according to Radio Liberty, Alfa-Bank refused to entrepreneurs who confirmed the lack of income in quarantine. The banks had a loophole: they introduced "credit holidays" at their own discretion.
"Bankers initially said that a credit delay is a terrible thing, because every second loan will become irrecoverable. But this did not happen: only every fourth loan became irrecoverable. There was some increase in the delay, because Ukrainians are poorly financially organized, it is difficult for them to plan their income in the future, so they make mistakes, "says Ruslan Chorny.
In the Ukrainian Bureau of Credit Histories, they say that the peak of the growth in the number of problem debtors fell on March, but from April the money on loans began to return better.
Despite the absence of sharply negative statistics and the benefits of "credit holidays" for part of the population, Ruslan Chorny doubts that these measures will be taken again in 2021.
The collapse of microfinance organizations and the risks of "bankruptcy"
The commercial director of Moneyveo credits Maxym Paraska spoke about the growth of demand for the services by 1.5 times due to the loss of income in quarantine and refusals to provide loans from banks. According to him, the costs of attracting new customers were reduced, the advertising on TV was removed and the focus was on existing customers.
Those organizations that show a good "plus" survive by reformatting their work online amid the low availability of online lending in the market. In April 2020, the request for "loan online", according to the Google Search Panel, grew by 20%. Those who managed to restructure the work format in time did not feel a serious blow from the pandemic. But in general, the market for services of microcredit organizations is declining: in mid-April, demand was only 46% of the indicators in February.
Compared to 2019, the drop in demand was 9%. Microfinance organizations returned to February volumes more slowly than banks. The average amount of a microcredit, although slightly increased in comparison with 2019, has become worse to repay debts to such organizations. According to the Opendatabot for December 23, 2020, they are up 7%.
According to CBR, Ukrainians do not trust advertising because information about the cost of a loan is often missing, is incomprehensible or seems too attractive to believe. However, experts associate the drop in revenues of microcredit organizations not with the growth of financial literacy of the population, but with the tightening of the conditions for their activities.
Ruslan Chorny also believes that a number of companies will be purged from the market, and the rest will change their work format.
“The first penalties for those who blatantly lied to their customers already exist. I think this has somewhat cooled the ardor of companies that continue to operate on the market. They understand that it is not worth playing games with the regulator,” the expert says.
If we talk about the future of large financial institutions, about the risks of a "bankruptcy" due to a pandemic, experts assess them as low. Although banks suffer losses for the first time after two years of profitable activity (net profit for the first half of the year decreased by 23% compared to 2019), they will still come out on top in 2020. In addition, banks have financial buffers that have been created in recent years in case of crises.
Therefore, if a bank closes, it is a consequence of its internal, and not systemic problems. The head of the National Bank Kyrylo Shevchenko emphasizes: the bankruptcies of Arkada and Misto Bank, which occurred in 2020, were not caused by the COVID-19 pandemic.
The decline in bank profits will be observed in 2021 as well. Keeping staff, digitalizing and maintaining ATMs is a costly process. Therefore, it is likely that some financial institutions will unite.
What will happen to lending in 2021
The press service of the National Bank reports on positive expectations of 80% of financial institutions for the next 12 months regarding the growth of lending. Banks are ready to soften requirements, especially for small and medium-sized enterprises, to provide short-term and hryvnia loans.
"Now the situation in the country, albeit deplorable, is becoming more predictable. People are beginning to be more relaxed about money and new loans. Accordingly, lending will grow this year. Even if the discount rate increases by 1-2%, interest rates on loans I think they will soon fall to the real level - up to 10%. But will the growth of lending be significant, such as, say, in 2019? I don't think so. Especially if the quarantine continues," Ruslan Chorny shares his opinion.
The analyst assumes that the growth trend in mortgage lending will continue due to the launch of new government programs. It suggests tougher competition in the market, which will manifest itself in lower interest rates. Accordingly, the number of clients who can take out a mortgage will increase. However, the "boom" will not happen: last year we saw the fall of Ukrbud, and now another capital developer company is on its way. If it goes bankrupt, it will seriously affect the real estate market in general and mortgages in particular.
Oleksiy Kushch predicts growth only in consumer lending, betting generally on stagnation in 2021. In his opinion, the dynamics of incomes of the population will change according to the current amplitude: decrease during the quarantine period and recover during the "rebound" period.
"People buy irons, hair dryers, telephones - this will remain. But in general, the effective demand of the population is very low. Business investment activity is also low: it does not understand at all which industries will survive, which ones will develop. There is a so-called K-growth model, when some industries are developing, others are stagnating. Since it is not yet clear who and where will be, the demand for loans will be anemic, "the expert says.
Lending activity of entrepreneurs, in his opinion, will be low. Under quarantine conditions, businesses are cutting back on credit programs, postponing capital investments, and trying to survive. Entrepreneurs will take loans mainly to replenish working capital in order to pay off suppliers, contractors, pay salaries to employees, but not for business development. The analyst sees prospects only in a small segment of commodity companies. Investment lending is possible in the agricultural sector, in logistics, which successfully survived 2020.