Banking sector: The long and winding road to recovery
Ukraine’s banking sector underwent fundamental changes since 2014. Driven by the National Bank, this process culminated in the removal of more than half of the banks from the market. As a consequence, bank assets in relation to GDP declined significantly.
One legacy of the financial and economic crisis is a huge stock of non-performing loans in banks’ balance sheets, which is a drag on new lending, and which needs to be resolved. Significant progress has been made in restoring the capital base of the sector; the respective capital adequacy ratio has doubled. This has increased confidence in the financial system and also helped to relax the liquidity situation. Another unintended legacy of the crisis is the dominant position of state-owned banks: The nationalisation of PrivatBank implies that the four biggest banks in the country are now owned by the state.
However, significant homework remains to be done to see a sustainable restart in lending. The key issue of creditors’ protection must be mentioned here, as the legal framework needs substantial overhaul to reduce lending risks that became all too obvious during the crisis.
