Banks floating above break-EVEN POINT
The National Bank of Ukraine has reported that the net profits of the Ukrainian banking system in January was UAH 652 mn, which is impressive, considering that one year ago the system suffered net losses of UAH 5 mn. Interest earnings accounted for the lion’s share of revenues having grown 3.8% to UAH 9.42 bn. Moreover, the volume of issued loans compared with December dropped 0.8%, or by UAH 6 bn. The credit portfolios of legal entities fell by UAH 4.9 bn and those of individuals - by UAH 1.1 bn.
Financial specialists attribute the growing earnings to the exorbitant interest rates on loans, which in the national currency grew to 25-30% per annum, despite the contraction of the volume of loans issued. Also, in January liquidity in the banking system started to improve. The residual of funds on the correspondent accounts of banks steadily fluctuated within the range of UAH 20-23 bn. Despite this, banks were slow to reduce interest rates on loans. "In January, resources became cheaper because many clients have not yet restored active operations after the holiday and considerable residuals have accumulated on correspondent accounts. At the same time, loans were issued at high interest rates. In the beginning of the year the Finance Ministry effectuated major repayments of T-bills. This added to the liquidity of banks, which allowed them to increase lending volumes and increase their interest earnings in January," said Treasury Director of DV Bank Oleksiy Kozyrev. One should not expect a considerable decrease in interest rates over the next several months. "The situation with mid-term financial resources on the market remains difficult. The interest rates for 3-6 month term deposits are gradually declining and the market is experiencing uncertainty about their further dynamics," notes Vice Chairman of the Board of Sberbank of Russia Dmytro Zolotko. That is why if the situation with liquidity remains stable, the bank plans to preserve interest rates on loans at a level of no less than 20-23%.
Commission fees are another weighty component of the earnings of financial institutions. In January, they grew 27% to UAH 1.446 bn. The trend of a sharp hike in service fees for cashier settlement services (CSS) for corporate and private clients picked up steam during the past financial crisis continued this year."In January 2012 banks focused on earning commissions from settlement operations, cashier services, payment cards, wage projects and corporate plastic cards," says Kostyantyn Kononenko, Director of the Methodology and Bank Products Development Department at EuroGasBank.
For this reason at the beginning of this year banks could not turn a profit from currency speculations or investments into the stock market. Banks suffered losses of UAH 142 mn (-55%) from trade operations in January and other operating profits fell by UAH 544 mn (-17.5%). Over the next several months financial institutions are likely to show a positive balance bringing shareholders stable, albeit not very high, dividends. "The net loss in the banking sector last year was due to the considerably poor results of a few banking institutions. The majority of banks showed profits. The increase in bad loans has tapered off and we even have observed a decrease in their share in the general portfolio," stated Anastasia Tuyukova, an analyst at Dragon Capital According to the NBU, troubled loan debts decreased over the past year by 6.6% (by UAH 5.6 bn) amounting to UAH 79.3 bn. The majority of banks has completed the formation of reserves to cover bad loans and therefore can afford to considerably reduce expenditures.
Banks are actively selling off bad debts to collection companies, which will partially return to them so-called "suspended" resources. "In addition to that, banks are becoming more actively involved in filing claims and lawsuits. The majority of trials concerning problematic loans are approaching their final stage.
Another aspect of problem assets that should soon start working is loans for which their security has already been exacted. This year it will be actively realized by banks at market prices," assures Hryhoriy Perer-va,Director of the IBI Rating agency.
Interest earnings will remain one of the key sources of earnings for banks. "The growth of credit portfolios in the banking system this year could be as high as 20%. Seeing as many banks are currently withdrawing from the retail banking business, lending to the corporate sector will develop at a faster pace," assures Dmytro Hry-dzhuk, CEO of Khreshchatyk Bank. According to the estimates of financial experts, the aggregate profit of the banking system could amount to UAH 0.5-1 bn this уеаг.