Key messages from NBU Deputy Governor Yaroslav Matuzka’s column “What is happening to Ukrainian banks during the war?” for an online edition NV Business
- For nearly five months, Ukraine has been fighting in a full-scale war raging not only on the battlefield but also on all other fronts. One of the key battles is raging on the financial front since it is the stable financial system that is providing the resources required to fight and win.
- The banking system has been operating around the clock without disruptions, processing payments and ensuring customers’ access to their funds. Such stability was made possible as a result of “a lot of homework” done by banks. The banks were operationally stable and efficient when they faced the crisis. They had significant capital and liquidity reserves, as well as contingency plans developed in advance.
- The banks are operating at the highest capacity possible during the war. Today more than 85% of large bank branches are operational (versus 55% in early March). All the critical processes are being maintained, and all the data are retained. The levels of digitalization are high. Banks have been able to digitalize many functions, in particular, by using cloud services.
- The banking sector has preserved its operating profitability: net operating profit grew by over 30% yoy in the first five months of 2022. However, it is clear that a deep crisis triggered by the war will have far-reaching consequences. The materialization of credit risk is the biggest threat that banks are facing at the moment. The NBU estimates that the banks will lose at least 20% of their loan portfolios.
- Most banks have sufficient capital to cover significant loan losses and sufficient level of operating profitability to recover capital on their own after the current crisis bottoms out. There will be hard work for banks to do: realistically assess the current situation, develop and implement recovery plans. The NBU will give banks enough time to restore their resilience.
- The NBU is pursuing a policy of regulatory easing to help the banks come through the crisis. The NBU will not apply corrective actions to banks for failure to meet the required capital and liquidity ratios while martial law is in effect. >From late July, the NBU will decrease the risk weights for unsecured consumer loans to 100%, from 150%. The banks will be able to use the accumulated capital reserves to cover loan losses.
- Countering disinformation is yet another challenge. We are seeing deliberate efforts to destabilize the situation by spreading negative unsubstantiated information. It is intended to push bank customers into emotional and irrational actions that might result in deteriorating financial indicators of some banks and cause an imbalance in the system. No matter who sponsors such effortts, they destabilize the macrofinancial situation. Today this is clearly playing into the hands of our enemy.
- The information war that is raging on today has taught us to rely on our critical thinking. The NBU regularly updates the information about the banking sector on its official website and publishes the detailed analysis of the situation in the Financial Stability Report. Please use only official sources and expert information and beware of unreliable sources.