Bank deposits up in June, lending sluggish
Total bank deposits rose by Hr 6 billion to Hr 364 billion in June. Hryvnia accounts rose Hr 7 billion to Hr 206 billion, while foreign-exchange deposits shrank by more than Hr 1 billion to Hr 158 billion. Hryvnia-denominated household deposits increased by almost Hr 6 billion to Hr 122 billion last month, driving overall deposit growth and thereby indicating the continuing improvement in public confidence towards the hryvnia and the banking system. At the same time, lending remained sluggish, with the total volume of outstanding loans staying virtually unchanged at Hr 697 billion, as gradual growth in hryvnia corporate loans was offset by the continuing deleveraging in the household sector. Market analysts expect lending to pick up in the second half of the year as declining deposit rates make loans more affordable for the corporate sector. The NBU reported the average interest rate on hryvnia term deposits stood at 10.2 percent in June, down from 16 percent on average at the beginning of the year.
NBU continues cutting interest rates
The National Bank of Ukraine cut its key interest rates by 1 percentage point in response to slowing inflation and other signs of macroeconomic stabilization, reducing its benchmark discount rate to 8.5 percent and slashing refinancing rates on overnight loans to 9.5-11.5 percent. However, the rate cuts are unlikely to have much of an immediate impact on economic recovery and banks’ lending activity in the short term as liquidity in the banking system is currently at record high levels, but banks are struggling to find creditworthy borrowers while remaining wary about longer-term economic risks. As a result, the NBU has provided virtually no liquidity-support loans to banks this year but had to sterilize excess liquidity on a regular basis. Commercial banks’ balances with the NBU rose to an all time high of Hr 33.5 billion last week, having doubled since the beginning of the year.
Merchandise trade deficit halves in May
According to the State Statistics Committee, Ukraine’s merchandise trade deficit almost halved in May to $200 million, its lowest level so far in 2010, bringing the January-May trade gap to $2.1 billion. Exports from the country remained virtually unchanged compared to April at $4.2 billion, benefiting from a surge in global commodity prices, while imports fell by 4 percent to $4.4 billion on lower purchases of food and chemical products. Imports of fuels and minerals were stable in May as an 80 percent spike in gas imports was offset by a slump in oil imports caused by maintenance work at the largest domestic oil refinery. Ukraine’s merchandise trade deficit probably widened in June on weakening steel exports, with the latter now viewed as a key near-term risk to the country’s trade balance.
Ukraine may issue $2 billion Eurobond
The Ukrainian government plans to increase the size of its planned Eurobond to $2 billion from $1.3-1.5 billion, aiming to place a 10-year issue paying a fixed coupon rate, though a shorter maturity of 8-9 years is not being ruled out. The government began meetings with investors last week to market its new bond, and placement is expected later this month provided market conditions are favorable. Analysts expect the debt to be sold at a yield of 8-8.5 percent, which implies a premium of up to 0.5 percent to the country’s longest-maturity Eurobonds due in 2017.
