A radical solution by the state-owned banks: details from the financial stability Board

Кардинальные решения по госбанках: детали от Совета по финансовой стабильности

Кардинальные решения по госбанках: детали от Совета по финансовой стабильности

The Ukrainian economy is gradually recovering, inflation is decreasing and predictable, and the banking system is stable, capitalize, becomes transparent and profitable. The profitability of Ukrainian banks in 2018 for the year was a record for the last 10 years. In only 11 months, the banking sector will return 11 times more than all of last year to UAH 20 billion.

Macroeconomic and financial stability and restore confidence in the banking system is the most important achievements of the National Bank in 2018 and remains a priority for the future.

In this context, the NBU notes that the most significant risk to the profitability of the banking sector at the current stage of development is extremely low, the operating efficiency of certain state banks.

A large part of non-performing loans (NPLs), formed in the banking sector, poses a threat to financial stability and prevent the financing of the economy. The financial stability Board notes that the high level of NPLs in the portfolios of public sector banks was due to the influence of the following factors: the deteriorating macroeconomic environment in the years 2014-2016, the unfairness of many borrowers, military aggression and occupation of Crimea and the territory of the Donetsk and Lugansk regions, unfair credit practices and so-called political lending.

The low quality of the loan portfolio generates significant fiscal risks for the state budget expenses to support banks ‘ capital was enormous.

Note that at the end of last year, among public banks have significantly improved their positions in the ranking only of “PrivatBank”. For 9 months of 2018, the Bank showed profit in the amount of 5,093 billion. and net interest income at more than 10,685 billion UAH. increasing it compared to the first half of 2018 on 243,36%. In January-November 2018 the Bank’s financial statements reflected a profit of $ 9.03 billion UAH.

From the list of banks with state participation in the capital of the positive indicators recorded on the performance of “Ukrgasbank” for 9 months of 2018, he managed to reduce the share of bad loans in the loan portfolio by 5.04 percentage points of 19.82%, which is much better than the average on the market.

The situation in “Oshchadbank” and “Ukreximbank” was still a few worse, but none of these banks never fell out of the group with the highest rating of reliability, largely thanks to the support of the state.

It is worth noting that at the end of November 2018, the amount of NPLs in the three banks amounted to 194 billion.

The financial stability Board created a working group composed of representatives of NBU, Ministry of Finance of Ukraine of Fund of guaranteeing the deposits of individuals and international experts to develop principles for restructuring, NPLs in the three public sector banks (Oschadbank, Ukreximbank and Ukrgasbank).

As a result, at the last meeting on 20 December 2018, the financial stability Council adopted the main principles of work of banks with non-performing loans “Recommendations (guidelines) on public sector banks with non-performing loans (NPLs)”.

Approved the recommendations of the financial stability Board, provided that the Memorandum between Ukraine and IMF, should help to reduce one of the systemic risks to financial stability in Ukraine associated with the excessive volume of non-performing loans in the banking system.

Introduced recommendations in addition to the requirements of the Law of Ukraine “On financial restructuring of” working group formed by the RFU. They only concern the process of restructuring large exposures, i.e., exceeding 5% of regulatory capital of banks, and determine the basic prerequisites, the observance of which will ensure the fairness and transparency of the restructuring process, as well as to protect the interests of the state as ultimate owner of the banks.

Although these recommendations have been developed for public sector banks, banks with private capital could also use them in their work.

Provides that state banks have to report on work with problem indebtedness (including, in particular, restructuring) every six months (the first report is expected in February 2019) for a joint report by the Ministry of Finance of Ukraine and its publication.

The development and implementation of effective steps by the financial stability Board to work with non-performing loans of public sector banks, aimed at ensuring and strengthening the awareness of investors, depositors, customers of banks about the state of the banking system, its transparency and efficiency. Such measures are aimed at improving the quality of banks ‘ loan portfolio, reducing fiscal risks for the state budget compensation of expenses in capital support to state banks. The relevant principles are directed on liquidation of consequences of abuse in the financial sector, stimulating the growth of confidence in banks, which will contribute to fulfilling one of the strategic objectives of the National Bank is to ensure stable, transparent and efficient banking system.

Recall that the recommendations came into force on 9th January 2019 and will remain in effect until the entry into force of a regulatory act of the NBU on the organization of Bank process management of non-performing assets, which is being developed jointly with the world Bank.