Having gotten used to the easy availability of credit in recent years, Ukrainians now face higher interest rates and tougher terms on bankissued loans. The National Bank of Ukraine’s (NBU) antiinflationary policies and the lack of liquidity on global markets forced local banks to tighten lending and roll back credit operations.

The loan portfolios of Ukrainian banks are still increasing, but the growth rate has dented noticably. Analysts say the slowdown in borrowing doesn’t portend to a national credit crisis. They see it more as a correction and transition from unsustainable rapid credit growth.

“The main conclusion we can make from the current situation is that retail credit will not be as available as it was in 2006-2007,” said Vitaliy Vavryshchuk, an analyst at Kyiv-based investment bank Dragon Capital.

In the last two years, the Ukrainian banking system has been unbalanced, Vavryshchuk said, pointing to intensive demand and surging household incomes. But the spiraling inflation which kicked off last year into 2008 and peaked in April made many potential customers and banks revise their loaning practices. Cooling down, the central bank raised its interest rates, forcing banks to tighten their lending terms to avoid a pileup of bad debt.

Vavryshchuk said that the moves should help the market eliminate risky lending practices, a good move which could tighten up borrowing for many but prevent serious banking troubles.

“There will not be such rapid profit growth in credit operations,” Vavryshchuk added.

Most Ukrainian banks are expected to easily weather out the storm. The business of most banks will still increase, but not at the excessive rates seen in past years.

The annual growth of bank net assets in 2008 is expected to be some 36-38 percent, Vavryshchuk predicts, compared to last year’s 76 percent rate. The average growth rate of credit portfolios will also slow from last years 74 percent to a more modest 45 percent in 2008. For 2009, Dragon Capital forecasts the credit portfolio of Ukraine’s banks will increase by 36 percent, less but still strong for an emerging market like Ukraine.

Some experts predict growth rates will be even less, though still at doubledigit levels.

Alla Kobylyanska, an analyst at the Institute of Economic Research, said one reason borrowing is tightening up is the world credit squeeze. Ukrainian banks have borrowed billions of dollars from western lenders in recent years, relending these funds on the Ukrainian market at higher rates. Yet as the cost and availability of loans from abroad tightened up this year, Ukraine’s banks have less money to play with, she added.

“International lending conditions have become much tougher this year," she added.

Yevhen Hrebenyuk, an analyst at the Ukrainian branch of Troika Dialog investment bank, said the increased caution on the market should be seen as positive. It will prevent the accumulation of bad, risky debt.

Evhen Maksakov, head of the credit department at ProCredit Bank, a microlending institution, said that the flush availability of cash in past years has lead to risky lending practices by many banks. A correction was needed, and while painful for some in the short term, it will prevent a crisis.

“I would not call the situation a crisis. It was a planned and predictable change of priorities from aggressive lending activity towards a more reliable and stable lending business,” he said.