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Fitch: Ukrainian Banking Sector Could Return to Profit in 2018
December 6, 2017 / 2:43 PM / in 5 days

Fitch: Ukrainian Banking Sector Could Return to Profit in 2018

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Ukraine’s Banking Sector: The Long Road To Recovery here MOSCOW/LONDON, December 06 (Fitch) Ukraine's banking sector may return to marginal profitability in 2018, although still-high funding costs and impairment charges along with weak loan growth will continue to constrain any improvement, Fitch Ratings says. Profitability remains weaker than in other CIS and CEE countries. The sector last made a full-year profit in 2013, but return on average equity narrowed to -2.7% in 9M17 from -132% in 2016, largely due to a sharp fall in impairment charges. The sector result excluding insolvent banks was already positive in 9M17 as banks returned to marginal loan growth following a period of deleveraging. Profitability should improve further in 2018 due to falling funding costs and a pick-up in GDP growth. However, loan growth next year is likely to be in single digits. Credit is still expensive, particularly for retail borrowers, and the number of borrowers of reasonable quality is also limited. The large stock of legacy problem assets, still large provisioning needs and moderate capital buffers are additional constraints on credit growth and performance. NPLs were a high 57% of loans at end-3Q17, with around 80% reserve coverage. At UAH113 billion (USD4.3 billion), unreserved NPLs are equal to the sector's regulatory capital or 2.8x annualised pre-impairment profit in 9M17. This means banks could need further capital support if additional credit losses materialise. Most of the new capital that has entered the sector in the last four years has been channelled to state- and foreign-owned banks, and we believe such support would be likely to continue, if needed. Government-controlled lenders account for more than half of sector assets following PrivatBank's nationalisation late last year. Privat is receiving additional capital support to fully reserve problem assets, although the associated additional impairment provisions in 4Q17 are likely to keep the sector loss-making for the full year. The number of Ukrainian banks has already halved during the clean-up and recapitalisation, but the still large number of small and weakly capitalised banks makes further consolidation likely. Fitch analysts discussed the prospects for the sector at our recent conference in Kyiv. The presentation "Ukraine's Banking Sector: The Long Road to Recovery" is available at www.fitchratings.com or by clicking the link above. Contact: James Watson Managing Director, Financial Institutions - Banks +7 495 956 6657 Fitch Ratings CIS Limited 26 Valovaya Street Moscow 115054 Olga Ignatieva Senior Director, Financial Institutions - Banks +7 495 956 6906 Mark Brown Senior Analyst, Fitch Wire +44 203 530 1588 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email: julia.belskayavontell@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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