Net hryvnia loans to businesses and households and investments in government securities are steadily growing. The banks have maintained high profitability, despite the retroactive imposition of increased income tax, and hold sufficient capital to meet regulatory requirements and continue lending. This is according to the Q4 2024 Banking Sector Review.
The banks’ net assets were up 7.6% in Q4 and 16.2% in 2024. First of all, investments in government bonds rose 11.2% qoq and by more than one-third year-on-year. The volume of investments in NBU certificates of deposit decreased 11.6% yoy.
Net hryvnia loans to businesses have been growing for 1.5 years in a row. Despite a certain seasonal slowdown in Q4 2024, the overall increase was 20.6% for the year. Net hryvnia loans to SMEs rose a bit faster in Q4, up 1.2% qoq and 22.1% yoy. Their share in the net hryvnia portfolio of business loans expanded to 60.2%.
The fastest growth in lending occurred in state-owned banks: up 5.3% in Q4 and 24.8% over the year. By sector, the most significant increase in loans to enterprises during the quarter was in the food industry and machine building. For the year overall, the fastest pace occurred in retail and the food industry.
Loans made under the Affordable Loans 5–7–9% program shrank over the year as a share of the net hryvnia corporate portfolio to 33.7% as of end-2024.
Responding to a certain uptick in business investment demand, net hryvnia loans with over three years’ maturity grew 21.6% qoq and by more than 58% yoy in Q4, their share in the portfolio rising to 25.2%.
Net hryvnia loans to households are surging: up 6.7% qoq and 39.9% yoy in Q4. Unsecured loans continue to dominate this portfolio. The share of the two leading banks in this segment has been contracting for the second straight quarter as competition intensifies.
The growth in mortgages in Q4 slowed to 7% qoq and 60.7% yoy. Mortgage lending remains almost exclusively concentrated in the state program eOselia, whose gross portfolio rose to UAH 24.1 billion in Q4. Mortgage lending development requires more active engagement from the banks with market products. For this to happen, laws and regulations governing the real estate sector need to be tightened, and the design of state support for mortgages must be improved.
Loan portfolio quality is getting better. The non-performing loans (NPL) ratio shrank to 30.3% (18.6%, excluding the debts of PrivatBank’s former owners and legacy debts dating back to before the 2014–2016 crisis). As before, the drop in the NPL ratio was primarily driven by loan write-offs and increases in the volume of new loans. The share of corporate borrowers that defaulted on hryvnia loans in 2024 contracted to about 4%.
Bank funding from businesses and households continued to grow. The volume of hryvnia retail deposits at banks was up 3.7% qoq and 11.5% yoy. Hryvnia retail term deposits had been growing steadily since September. The dollarization rate of client deposits decreased to 31.4%.
Hryvnia corporate deposits increased 16.6% qoq and 19% yoy. The increase took place in all groups of banks.
A hike in the key policy rate finally brought to a halt the decline in interest rates on retail deposits. In December, the cost of new hryvnia retail deposits was 9.6% per annum, while that of corporate deposits, 8.3%.
Rates on hryvnia loans to businesses dropped to 14.7% per annum. Foreign banks offered the lowest rates: 11.4% per annum for foreign companies, and 14.3% per annum for Ukrainian private enterprises.
In 2024, banks made UAH 103.7 billion in profit (according to preliminary data going into the annual audit). In Q4, however, a loss of UAH 13.5 billion was recorded due to the retroactive accrual of the increased 50% income tax for the whole year. A number of banks, including four systemically important ones, have yet to fully reflect their income tax, and will do it soon.
Net interest income remained the main source of high profit due to stable yields on domestic government debt securities and loans. The interest margin averaged 7.6% for the year. Net commission income grew significantly (3.3% qoq and 5.2% yoy). In December, for the first time since the full-scale invasion, the monthly volume of net commission income hit pre-war levels.
Regulatory capital adequacy remained high, at about 17% as of 1 January 2025. Steps to further fully reflect the 2024 income tax in the books may still put some of the banks in violation of the ratios. However, these institutions will be able to rebuild capital by maintaining high efficiency and implementing capitalization programs.
A resilience assessment of the banks kicked off at the beginning of the year. Based on its results, the banks may have to draw up capitalization or restructuring programs and implement them by the end of the year. And a schedule will be developed for the introduction of new regulatory capital requirements.
The loans-and-deposits data published in the Banking Sector Review differs from the corresponding information posted in the Monetary Statistics section of the NBU’s official website, because the former:
- contains data on the banks that were solvent as of the reporting date unless indicated otherwise
- includes data from bank subsidiaries operating abroad
- contains data on deposits in other resident and non-resident banks
- has been adjusted for loan loss provisions unless specified otherwise
- contains data on personal certificates of deposit unless indicated otherwise
- contains information on non-resident clients.