The initial estimates of the SSSU (State Statistics Service of Ukraine) show that in 2013, the Ukrainian economy was in a state of stagnation (the GDP dynamics was 0.0% y/y). In the first three quarters, the GDP decreased on average by 1.2% y/y and only the last quarter was slightly better, which however to a considerable extent resulted from the base effect. The reasons for the stagnation in economic activity in 2013 were as follows:
- low dynamics of demand for the main Ukrainian export goods, accompanied by the continued too strong hryvnia exchange rate, leading to an increased deficit, and
- a drop in investment demand,
- a slow-down in consumer demand (reduced real wage dynamics).
For most of the year, the NBU held back the weakening of the hryvnia exchange rate, using foreign currency reserves to cover the deficit in financing of the current account deficit. The relative stabilisation on the foreign currency market in the first three quarters of the year was supported by a low household demand for foreign currencies and an extremely expansive monetary policy of the main central banks, which stimulated the inflow of capital to emerging economies. In 2013, the NBU actively supported liquidity in the banking sector by purchases of Treasury bonds. The banking sector’s liquidity was additionally supported by the inflow of UAH denominated deposits to the system, accompanied by low lending activity. In the last months of 2013, the situation on the financial markets deteriorated significantly. Access to foreign financing was reduced due to the increased expectations as to reduced expansiveness of the Fed’s monetary policy. Destabilisation of the political situation at the end of the year contributed to an increased demand for foreign currencies, which led to a significant weakening of the UAH/USD exchange rate on the interbank market – to 8.24 compared with an official NBU exchange rate of 7.99.
In accordance with the data of the NBU, the number of banks conducting operating activities in Ukraine increased in 2013 and as at the end of December was 180 compared with 176 as at the end of 2012. In 2013, the share of foreign capital in the total capital of the Ukrainian banking sector decreased noticeably and amounted to 34.0% as at the end of December compared with 39.5% as at the end of 2012.
The total assets in the Ukrainian banking sector in 2013 grew and amounted to UAH 1 278 billion as at the end of December (a UAH 150.7 billion increase compared with the end of 2012). The increased balance of assets was related to the increased value of the loan portfolio, which amounted to UAH 94.2 billion. Whereas the increase in the loan portfolio was due to an increase in the debt of enterprises (both financial and non-financial) by a total of UAH 89.6 billion as at the end of December 2013 compared with the end of 2012. In the same period, amounts due to banks from households increased by UAH 5.9 billion. The total value of the loan portfolio in the Ukrainian banking sector as at the end of 2013 was UAH 913.2 billion, of which UAH 910.8 billion were loans to residents. Due to the binding regulatory restrictions, the lending activity in 2013 was concentrated in the local currency loans segment (indebtedness as at the end of December 2013 increased by 16.9% compared with the end of 2012), which was accompanied by a considerably lower increase in indebtedness of all the foreign currency loans sectors (+2.8% in the same period). A decrease in the balance of long-term loans (a drop in the balance of banks’ receivables maturing after 5 years in 2013 by 1.4% compared with December 2012) suggests that the difference between the dynamics of foreign currency loans and those denominated in UAH was largely due to repayments of previously drawn mortgage loans.
The deposit base of the Ukrainian banking sector increased in 2013 by UAH 98.5 billion (to UAH 701.6 billion). The increase in the deposits was mainly related to household deposits (+UAH 72.7 billion compared with December 2012). A considerably lower increase occurred in deposits from non-financial companies (+UAH 21.8 billion) and financial companies (+UAH 5.3 billion). The entire growth in the deposit base took place through an increase in deposits denominated in UAH (+UAH 101.5 billion as at the end of December compared with December 2012), accompanied by a decrease in foreign currency deposits (-UAH 3.9 billion). These changes were mainly brought about by a high inflow of deposits in the local currency from households (+UAH 71.1 billion), which was a consequence of decreased devaluation expectations in the first part of the year, a high difference in the interest rates of deposits denominated in UAH compared with foreign currency deposits and uncertainty as to the possibility of imposing tax on foreign currency trading by individuals.
The accelerated increase in the deposit base compared with the lending activity dynamics further helped to improve the L/D ratio, which amounted to 130% as at the end of December 2013, compared with 136% in December 2012. The share of foreign currency loans in the loan portfolio structure also dropped (to 34% as at the end of December 2013 from 37% in December 2012).