Ukrainian banks suffer 53 billion net losses in 2014

National Bank of Ukraine said on Wednesday that total net losses reported by the Ukrainian banks reached the amount of UAH 53 billion. However, the key banking operations remained profitable across the entire banking system.

In 2014, the total income earned by the Ukrainian banks increased by 24.5% YoY and amounted to UAH 210.2 billion. The expenses of the Ukrainian banks grew by 57.2% YoY and totaled UAH 263.2 billion. Total loss in the banking system amounted to UAH 53.0 billion as of January 1, 2015.

40% of total losses (UAH 19.9 billion) were produced by the banks that had been declared insolvent and those that had been placed under provisional administration by the Deposit Guarantee Fund. Excluding those losses, the banking sector made a loss of UAH 33.1 billion.

During 2014, in the wake of turbulent political and economic processes, the banking system was exposed to substantial risks, in particular, credit risk. The creditworthiness of borrowers deteriorated and the amount of non-performing loans increased amid external shocks, which were difficult to project. The banks had lost the property pledged as collateral and other assets serving as collateral for loans. It resulted in quality reduction of loan portfolio and also prompted the need to implement a package of business continuity measures.

The banking sector’s net losses were primarily attributed to a substantial rise in loan loss provisions. Overall, the loan loss provisions increased 3.7-fold as compared with the previous year, with their share in total expenses climbing from 16.7% from 39.3%.

«It was objectively difficult year. The annexation of the Crimea, military operations in the Donbas Region became the catalyst of deterioration of the financial conditions in the country. We were forced to form UAH 2.8 billion loans provisions, which resulted in annual losses UAH 2.6 billion,» – said Unicredit Bank CFO Giacomo Volpi.

However, despite a tough year, the bank’s UAH deposit portfolio even showed an increase in 2014. UniCredit Bank liquidity is UAH 7 bln as of January 1, 2015. It allows to fulfill all commitments without any delay – clients do not face any issues in deposit withdrawal. According to the banker, UAH 2 bln out of the total volume were invested in the NBU deposit certificates, another UAH 2.4 bln in short term government bonds. The remaining amount is held in the account with NBU to support daily operations.

Not all the banks reached the financial year-end with losses. For example, Kredobank (Group PKO Bank Polski), who operated mainly in western Ukraine, has received annual net income of UAH 4.59 million and significantly increased its assets – up to UAH 6 billion. Operational result of the bank exceeded UAH 83.5 million, and the loan portfolio grew to UAH 3.3 billion. «Despite the political turmoil and economic turbulence in 2014, Kredobank got a profit and grew ahead of the market. That’s because of our customers confidence, coordinated work of the bank’s employees and the support of our strategic shareholder – Poland’s biggest bank PKO Bank Polski,» – said Kredobank’s CEO Dmitry Krepak.

So, the key factors of the banks’ financial vulnerability were the following: inadequate risk management policy, large-scale projects funding, and also the temporary occupation of the territory of the Autonomous Republic of Crimea and the situation in the east of Ukraine.

«In spite of unfavorable external environment, the banking system maintains a certain degree of resilience. The policy intended to inject additional capital into banks and efforts to purge the banking sector of unscrupulous banks would provide a positive impetus to the banking system,» – commented the experts of National Bank of Ukraine.

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