The Ukrainian market

After reaching the bottom of the recession in the first quarter of 2015 (-17.2% y/y), GDP growth rose to -1.2% y/y in fourth quarter pf 2015. In 2016, the economy should come out of recession and record an increase of approx. 1-2%. The collapse of the hryvnia quotation and an increase in administrated prices in April (hot water, gas, electricity) have led to a drastic rise in CPI inflation. On average it amounted to 48.2% y/y with a peak of 60.9% y/y in March and 43.3% y/y at the end of 2015. Very high inflation contributed to a deterioration in households (real wage growth in January-December 2015 amounted in average to -18.5% y/y). In 2016 the downward trend in inflation will be visible, it will be supported by the expiry of the effect of increase in utility prices in April 2015.

The strong depreciation of the hryvnia exchange rate (from 15.82 UAH/USD at the end of the December 2014 to 33.75 in 26 February 2015) forced the central bank to raise interest rates to 30% (from 14% at the end of 2014). The stabilization of the exchange rate allowed (from August) to decrease main interest rate to 22%. After reaching the minimum in February ($ 5.6 billion) foreign exchange reserves grew steadily reaching 13.3 billion US dollars in December (which is 3.6 times the monthly imports). NBU continued to finance the Ukrainian budget (increase in the share structure of the holders of government bonds from 69.5% to 77.1% at the end of the year.) At the beginning of the year, the reversal trend was visible due to the increase in bond purchases by commercial banks.

The number of banks that operate in Ukraine dropped in 2015 (latest available data on 01.12.2015) from 163 to 120. The share of foreign capital in the sector declined in the first half of the year (from 32.5% in December 2014 to 27.5% in June 2015) to increase up to 35.3% at the end of November.

The value of total assets in the Ukrainian banking sector in 2015 decreased (with the exception of a rapid depreciation period of the UAH) and in early December amounted to UAH 1 275.4 billion (down by UAH 41.5 billion to the end of 2014). By the end of 2015 the value of the loan portfolio has decreased by UAH 30.2 billion (insignificant scale of decline in the volume loans was mainly due to the depreciation of the hryvnia – the increase in the volume of foreign currency loans of UAH 86 billion, i.e. 17.5%). The decrease in the volume of loans to households by UAH 36.3 billion was not compensated by an increase in corporate loan portfolio by UAH 9.0 billion.

The deposit base of the banking sector in Ukraine has increased in 2015 by UAH 47.1 billion mainly by the increase of hryvnia deposits (UAH 28.1 billion). The volume of deposits in foreign currency has increased (UAH 19 billion) it resulted only from hryvnia depreciation. Household deposits decreased by UAH 17.2 billion, corporates grew by UAH 46.7 billion. Major changes in loans and deposit volumes that occurred in the first half of the year were related to fluctuation in the hryvnia exchange rate.

In 2015 the ratio of loans to deposits improved (decrease from 147.4% to 134.0% in December). The share of loans in the currency structure of the loan portfolio increased to 56.9% in December (compared to 47.0% at the end of 2014). In 2015, banks were gradually rebuilding its capital base after a sharp decline in the 1st quarter. Despite this, from 11.2% at the end of 2014 to 9.7% in November 2015, the straight lever ratio felt (equity/assets).

Compared to the end of 2014, rate of non-serviced loans significantly increased (21.2% at the end of November 2015 vs 13.5% in December 2014). In the period January-November ROA fell (-5.1% vs -4.1% in 2014) with a deep drop in ROE (-47.8% vs -30.5% in 2014).