Financial stability report: signals of confidence amid war and uncertainty

UKRAINE - In Brief 24 Dec 2024 by Dmytro Boyarchuk
If you’re looking for a bit of optimism about Ukraine, you should take a look at the year-end Financial Stability Report released by the NBU yesterday. The monetary authorities are exuding optimism about the financial health of the banking system, reporting that the NBU’s Financial Stress Index has decreased, thanks to debt restructuring and declining yields on Ukrainian securities. While the level of non-performing loans (NPLs) remains high (around 32%), the majority of these are directly linked to Russian aggression, resulting from asset destruction or the abandonment of production capacities and assets in occupied territories. However, NPLs on loans issued after February 2022 are only 4%, according to NBU representatives, which highlights the high quality of the new loan portfolio. Additionally, NPLs resulting from Russian aggression have been appropriately provisioned. The main source of optimism isn’t just the low level of NPLs on new loans but also the recovering demand for loans from both businesses and households. The NBU reports an increasing willingness among businesses to expand production, while consumers are optimistic about their incomes and exhibit positive consumption sentiments. Over the year, the corporate loan portfolio grew by more than 20%, and retail loans increased by over 30%. The NBU interprets this development as a strong sign of confidence among economic agents in a positive economic outlook and expects the trend to continue into 2025. An important driver of the rapid growth in loan portfolios is the need for businesses to establish alternative sources of energy supply, such as individual solar stations, gas cogeneration plants etc. This is a...

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