Moody’s Investor Services, one of the world’s top bond credit rating companies, has raised its outlook for Ukraine’s banking system from stable to positive.
The agency predicts that, after four years of losses, the Ukrainian banking system will again become profitable in 2018. Within the next year to 18 months, Moody’s also believes Ukrainian banks’ creditworthiness will also improve.
“Ukraine’s economy will continue to recover gradually, stimulating credit demand and improving borrowers’ capacity to repay their loans,” Lev Dorf, a Moody’s analyst, said in a press statement.
In part, Moody’s credited growing profits to banks identifying their non-performing loans and restructuring assets. This will lead to a decrease in loan loss provisioning charges – possible additional costs for banks as they give out loans.
According to the agency, three quarters of Ukrainian banks were profitable in 2017. However, high provisioning charges at PrivatBank accounted for 90 percent of the banking system’s losses, causing the entire system to make a net loss that year.
PrivatBank was nationalized in December 2016 amid rumors of mass insider lending. At the time, the bank accounted for 20 percent of Ukraine’s banking sector. After nationalization, the Ukrainian authorities discovered a hole in the bank’s ledger of Hr 148 billion ($5.5 billion).
Later, National Bank Governor Valeria Gontareva announced that the bank’s entire corporate loan portfolio had gone to companies closely tied to its previous owners, oligarchs Ihor Kolomoisky and Gennady Bogolyubov.
Moody’s has also forecasted that the Ukrainian economy will grow by roughly 3.5 percent annually in 2018. Continued economic recovery will in turn drive credit growth. The ratings agency expects that loan growth will reach 10 percent in the next two years, compared to 7 percent in 2017.
The Ukrainian banking sector has long been characterized by poor regulation, insider lending, and fraud. Since 2014, the Ukrainian government has struggled to clean up the sector. Besides nationalizing PrivatBank, Ukraine has also declared more than 90 banks insolvent and liquidated them.
On July 4, Ukrainian President Petro Poroshenko signed a new law liberalizing foreign currency controls, one of the country’s commitments under its association agreement with the European Union.
The law introduces greater freedom of currency transactions and more transparency, efficiency, and independence in the regulation of the currency market. It is expected to help attract investors to the country.
