Loan Portfolio Quality (NPLs)

russia’s military onslaught on Ukraine reversed the stable trend for a gradual reduction in Ukrainian banks’ NLP ratio that had lasted since 2018 and resulted in the volume of NPLs declining by almost UAH 300 billion and their share in the loan portfolio decreasing from 55% to 27% as of 1 March 2022 data includes banks that have left the market.

In March–May 2022, the NLP ratio remained virtually unchanged, in part due to a regulatory easing of credit risk assessment. Since June 2022, the banks have been gradually recognizing their NPLs.

The NPL ratio in the banking sector rose to 38% as of 1 January 2023. In March–December 2022, hryvnia NPLs rose by UAH 127 billion to UAH 432 billion.

The state-owned banks hold about 75% of the sector’s NPLs. PrivatBank alone has over 40% of them.

russia’s war brought about damage to assets and collateral property, loss of income, and deterioration of borrowers’ solvency. All of this in turn reduces borrowers’ ability to service loans, lowers the banks’ loan portfolio quality, and leads to an increase in provisioning.

The banks have already recognized large loan losses: since the start of the full-scale war, provisioning has exceeded UAH 100 billion and reached more than 12% of the banks’ loan portfolio as of the end of February 2022. Because of the war, the economic crisis and russian energy terror, the potential losses of the loan portfolio can reach 30%.

Timely credit risk assessments and implementation of balanced restructurings by the banks that need them is a prerequisite for preserving the banks’ resilience.

Work to resolve the NPLs caused by the current crisis will last even after the crisis bottoms out. Specifically, the banks will be required to update their NPL reduction strategies after martial law is suspended or lifted. The same requirement applies to the state-owned banks’ efforts to update their NPL reduction plans approved by the Financial Stability Council.

The implementation of these plans is a prerequisite for increasing the banks’ investment appeal in the future.

The surge in the NPLs ratio during 2015-2017 emerged mainly due to three factors:

An Asset Quality Review (AQR) of banks held by the NBU, which prompted banks to recognize significant volumes of loans as non-performing.
Introduction of a more stringent definition of "non-performing loan (NPLs)" term in accordance with best international practices (NBU Board Resolution No. 351).
Recognition of NPLs by PrivatBank after its nationalization.

Details on NPLs definition in different years:

Starting from 1 February 2017, NPLs are determined in accordance with the NBU Board Resolution No. 351 of 30 June 2016. NPLs are the defaulted loans. The default is determined by the fact of payments on the asset past due 90+ days, or the inability of the borrower to repay the debt without repossession of collateral.
From 1 January 2013 NPLs are determined in accordance with the NBU Board Resolution No. 23 of 25 January 2012. Non-performing exposures (previously defined as negatively classified assets) were determined as exposures with payments past due 90+ days; individual exposures past due 30+ days with low counterparty financial class (the last two of the five quality categories).
Starting from 1 January 2001, NPLs are determined in accordance with the NBU Board Resolution No 279 of 6 July 2000. Loans classified as "doubtful" or "bad" are determined as negatively classified loans. Negatively classified loans are loans for which debt service is at high risk (taking into account the borrower’s financial condition and the quality of the collateral), and the likelihood of full repayment of the outstanding debt is low or practically negligible.

Details regarding the disclosure of NPLs

The NPLs data has been published on the website of the National Bank of Ukraine since September 2017. Prior to that, disclosure of NPLs data accompanied the banksʼ quarterly financial statements.

1. Monthly from 1 September 2017 on the official website of the National Bank of Ukraine according to:

On establishing a list of information subject to mandatory disclosure by banks of Ukraine (NBU Board Resolution No 11, of 15 February 2018);
On publication of certain information on the activities of Ukrainian banks (NBU Board Resolution No 85 dated 31 August 2017).

2. On a quarterly basis, from 1 January 2012, banks are required to publish interim financial statements (including the Note "Certain Bank Performance Indicators" with data on loans by quality categories) by posting on the Bank’s website according to:

Guidelines on the procedure of preparation and disclosure of the financial statements of Ukrainian banks (NBU Board Resolution No 373 of 24 October 2011).

3. On a quarterly basis, since 1 April 2005, banks are required to publish quarterly financial statements (including the Note "Certain Bank Performance Indicators" with indication of loans by risk categories) in the newspaper of Cabinet of Ministers of Ukraine, "Government Courier", or the parliament’s (Verkhovna Rada of Ukraine) "Voice of Ukraine" according to:

Guidelines on the procedure of preparation and disclosure of financial statements of Ukrainian banks (NBU Board Resolution No 480 of 27 December 2007);
Guidelines on the procedure for preparation and disclosure of financial statements of Ukrainian banks (NBU Board Resolution No 598 of 7 December 2004).

Macroprudential Policy Strategy of the National Bank of Ukraine

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Data on the volume of loans and NPLs ratio by the Ukrainian banks since 2006

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