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Deposits, lending continue to rise; Government nationalizes three banks; Inflation speeds up to 1.1 percent; Public debt up 14 percent on IMF tranche.

Deposits, lending continue to rise

Hryvnia-denominated deposits at commercial banks rose by 3 percent in June to Hr 180 billion, remaining down 11 percent compared to the beginning of the year, while foreign currency deposits declined by 1 percent to $18.2 billion (down 10 percent since the beginning of 2009). Hryvnia deposits posted a net increase of Hr 5.1 billion in June, the highest monthly increase since September 2008. This upsurge owed largely to a steep rise in non-household accounts (up Hr 3.1 billion), as no large tax payments were due to the budget last month on the one hand and government spending intensified on the other. However, household hryvnia deposits also added almost Hr 2.0 billion, the largest monthly gain since August 2008. Foreign currency deposit inflows from households were also on the rise in June (up $0.4 billion), signaling further improvement in public confidence and partially offsetting a $0.6 billion drop in corporate foreign exchange accounts.

Meanwhile, the total volume of outstanding bank loans in hryvnia rose by 4 percent in June to Hr 334 billion but the volume of foreign currency loans dropped by 3 percent to an estimated $49.9 billion. Corporate lending in hryvnia surged by a net of Hr 13.2 billion in June, much higher than a Hr 7.5 billion increase recorded in May even if the former volume is adjusted for yet another loan (Hr 3.8 billion) the state-owned Oschadbank extended to the oil and gas monopoly Naftogaz Ukrainy to help it pay for imported gas. The decline in retail lending (hryvnia) virtually stopped, slowing to a mere 0.1 percent (-Hr 41 million) in June versus an average monthly decline of 2 percent in the previous six months. At the same time, foreign currency loans continued to shrink steadily in June on account of both households and corporates (down $0.4 billion and $1.0 billion, respectively).


Government nationalizes three banks

The government plans this week to complete acquisition of three private banks chosen for priority recapitalization. As the banks’ existing shareholders declined to participate in the subscription for new shares issued in the course of their bailout, the government, in line with its original target, is expected to acquire a 99.94 percent stake in Kyiv Bank for Hr 3.6 billion, 81.58 percent of Ukrgazbank for Hr 3.1 billion and 99.97 percent of Rodovid Bank for Hr 2.8 billion. The three banks will receive capital injections in the form of government treasuries maturing in 2017-2019 and yielding 9.5 percent annually. The banks will either sell the treasuries to the NBU or put them up as collateral for the central bank’s refinancing loans. Their bailout will be completed after the domestic stock market regulator registers the newly issued shares.


Inflation speeds up to 1.1 percent

Consumer inflation accelerated to 1.1 percent month-on-month in June (from 0.5 percent in May), picking up slightly in annualized terms to 15.0 percent from 14.7 percent year-on-year in May. June’s inflation was fuelled by a 4.1 percent rise in utility tariffs (heating, water supply and apartment rent), a 9.5 percent upsurge in prices of alcohol and tobacco following a hike in respective excise tax rates, and an 8.2 percent increase in gasoline prices. Food prices, the largest inflation basket component with a 53 percent share, were flat last month as a seasonal drop in dairy product prices was offset by growth in sugar prices triggered by expectations of a poor sugar beet harvest. With food price growth likely to remain moderate in the coming months due to weak domestic demand and a stable hryvnia exchange rate, overall inflation dynamics will depend largely on the government’s policy with respect to utility tariffs, the second largest inflation component after foods.


Public debt up 14 percent on IMF tranche

Ukraine’s public debt increased by an estimated 14 percent in May to $28 billion following the disbursement of an International Monetary Fund loan. The IMF transferred $2.8 billion to Ukraine in May, channeling half of this amount to the state budget and the other half to NBU reserves. Ukraine’ public debt is set to continue increasing this year on new IMF loans, expected to total $7.0 billion, and an estimated $2.4 billion of bank rehabilitation costs, reaching $40.5 billion (36 percent of gross domestic product) by year-end.