NBU banking sector review: lending is growing, loan portfolio quality is improving

Net hryvnia loans have been growing for a year and a half in a row, with lending to individuals growing at the pace of the previous quarter and lending to businesses growing somewhat slower.

This is stated in the NBU's review of the banking sector for the third quarter of 2024.

Banks' net assets increased by 1.8% in the third quarter. First of all, banks' investments in domestic government bonds increased: by 8.9% compared to the previous quarter and by 39% compared to the third quarter of 2023.

The volume of the net hryvnia loan portfolio of businesses in the third quarter increased by 6.9% compared to the previous quarter and by 22.9% compared to the third quarter of 2023.

The share of small and medium-sized enterprises (SMEs) in the net portfolio of hryvnia business loans increased to 60%. Banks of all groups increased their corporate loans, with private banks growing the fastest. Loans to the wholesale trade and agricultural sectors grew the most.

Further improvement in lending conditions is contributing to the increased lending. The share of loans under the program "Affordable Loans 5-7-9%" in the gross hryvnia portfolio decreased to about 34%.

Mortgage growth slowed slightly compared to previous periods. Almost all mortgage lending continues to be carried out under the state program"eOselya", whose gross portfolio increased by UAH 3.5 billion to UAH 21.3 billion in the third quarter. The share of real estate loans increased to 13.4% of the net hryvnia retail loan portfolio.

In the third quarter, banks earned UAH 38.6 billion in profit, down 1.2% quarter-on-quarter and 8.6% quarter-on-quarter in 2023. Net interest income remained the main source of profit, despite the decline in asset yields. First of all, the yield on certificates of deposit and their share in assets decreased, which resulted in a drop in the share of income from them in banks' interest income to 19.1%. At the same time, banks maintained the profitability of other assets, and the interest margin increased to 7.6% due to a faster decline in the cost of liabilities.

Profits and a sufficient transition period allowed banks to smoothly transition to the new capital adequacy ratios in line with European standards in the third quarter. At the end of the third quarter, no bank violated the minimum requirements, although regulatory capital decreased by 12.9% over the quarter, and the average regulatory capital adequacy in the sector fell to 16.2%.