Ukraine’s state-owned banks decreased their non-performing loans (NPLs) by Hr 87 billion, or $3.1 billion, in 2020, the Ministry of Finance of Ukraine stated on March 25.
In 2020, the share of bad loans in the portfolios of state-owned banks declined from 63.5% to 57.4%, reaching Hr 310 billion ($11 billion). In total, the share of bad loans in all Ukrainian banks – both private and state-owned – has been reduced from over 48% to 41%.
Although the level of non-performing loans in Ukraine’s banking sector is still high, the National Bank of Ukraine believes that the recent reduction of NPLs is just the first step on the road towards massive reductions in the future.
The state-owned banks mainly reduced NPLs via write-offs. In 2020, they wrote down over Hr 123 billion ($4.4 billion) of bad loans.
State-owned banks also restructured around Hr 42 billion ($1.5 billion) in non-performing loans.
Banks are continuing their attempts to recover overdue loans through courts. As of Jan. 1, state-owned banks filed over 68,000 lawsuits against borrowers, claiming a total of Hr 78 billion ($2.8 billion).
Experts believe that Ukrainian banks must reduce the volume of NPLs to avoid negative consequences.
“Such high level of NPLs is a burden for Ukrainian banking system and impacts not only the capability of banks to lend (since the banks should set aside larger provisions) but also blocks obtaining financing from the International Monetary Fund (IMF) which could help to stabilize Ukrainian economy,” said Iryna Pinchuk, an associate at the law firm Integrites.
If Ukrainian banks succeed at reducing bad loans, it would help attract foreign private investors into Ukraine’s banking system, NBU Governor Kyrylo Shevchenko told Reuters.
As Shevchenko wrote on Facebook, the National Bank aims to lower the share of those loans to around 20% by 2023.
As one of the milestones of this goal, Ukraine’s Financial Stability Council introduced a plan for government banks to reduce their NPL portfolios by Hr 305 billion ($10.8 billion) in three years.
Ukraine is negotiating with the IMF mission about creating a special financial court to settle bank loan disputes and give better protection to lenders, Shevchenko said.
