The number and volume of non-performing loans are systematically decreasing – expert
4 April 2024 12:21
The number and volume of non-performing loans in the banking system are decreasing, but directly depend on the course of hostilities, military assistance from Western partners, and the country’s economic development. This was stated by Olena Yermolova, Chief Risk Officer and member of the Board of Globus Bank, Komersant ukrainskyi 
reports.
Olena Yermolova noted that since the summer of 2022, the volume of non-performing loans has been systematically declining. At the same time, the expert believes that more than 90% of non-performing loans are loans that were issued before the start of the full-scale invasion, and their recipients, for objective reasons, lost the ability to repay them due to the circumstances of the war.
“There is a direct link between the number of non-performing loans, the circumstances of the war, the volume of loans issued before the full-scale invasion and after the resumption of lending. However, there is one more important nuance: borrowers from the frontline territories are always at risk, as the military factor can significantly affect their ability to repay loans on time,”
– said Olena Yermolova.
She reminded that according to the NBU statistics, the share of NPLs in the banking system remained almost unchanged at 32% for 9 months of 2022, which was explained by the NBU’s relaxation of its requirements for determining loans as non-performing due to the full-scale war.
However, the real dynamics of the NPL portfolio has objectively increased due to military aggression. In fact, in March 2022, more than 60% of bank customers failed to make their mandatory monthly payments.
After the liberation of Kyiv, Sumy, and Chernihiv regions from Russian troops (in April 2022), loan servicing and the debts accumulated on them gradually improved, and the positive dynamics of reducing the number of non-performing loans continues to this day.
“In February 2022, the NBU allowed banks not to consider non-performing loans for a certain period of time, which were temporarily suspended due to the full-scale invasion, and banks were also able to provide borrowers with loan repayment holidays. In 2023, the NBU not only returned the “pre-war” requirements, but also significantly expanded the list of criteria for defining a loan as non-performing. As a result, the statistical share of such loans has increased significantly,”
– said the expert.
At the same time, the banker noted that in order to objectively determine the volume of problem loans, it is important to understand the difference between problem and non-performing loans (NPLs). Typically, NPLs are loans with significant delays in debt service (over 90 days ). And according to the NBU’s regulations, NPLs also include a significant portion of loans that are serviced on time, have no overdue payments and are likely to be repaid by borrowers in accordance with the terms specified in the loan agreements.
“In the second half of 2022, the NBU brought back the pre-war requirements for classifying loans as non-performing, and in October 2023, the NBU significantly expanded the list of requirements for official reporting by legal entity borrowers, which led to a statistical increase in the volume of such loans in the banking system at the end of 2022 and in 2023. The regulator’s innovations should be taken with understanding, as they are important in view of the gradual reformatting of the Ukrainian market to international practices for determining NPLs, in particular, the standards of the EU banking system,”
– explained Olena Yermolova.
According to the expert, the share of both non-performing loans (as defined by the NBU) and problem loans (overdue for more than 90 days) in banks depends on a number of factors, including
- Lending dynamics. If a bank has frozen its own lending products, the actual loan portfolio of “good” loans will gradually decline and the share of non-performing loans will increase accordingly.
- Thebank’s policy in dealing with non-performing loans, namely, the sale of the non-performing loan portfolio and their write-off from the bank’s balance sheet. If a financial institution regularly sells loans with certain overdue periods or writes them off its balance sheet, the percentage of non-performing loans will decrease, but this will not reflect the actual state of affairs.
In her opinion, the most objective indicators of the level and quality of non-performing loans are currently available for those banks that do not sell loan portfolios or write them off, while developing the entire range of lending with a priority on small loans (consumer loans, car loans, mortgages, loans to small and medium-sized businesses).
It is in these financial institutions that the share of non-performing loans is on average up to 20% of the total loan portfolio, which is quite acceptable in times of war.
She spoke about Globus Bank’s NPL portfolio. In March 2024, the percentage of the non-performing loan portfolio (overdue for more than 90 days) was 13% of the total loan portfolio. Thus, the share of non-performing targeted loans to small and medium-sized businesses is only 3% of the total number of SME loans, mortgages – up to 4% of the total number of mortgages granted and car loans – 16% of the total car loan portfolio.
“The vast majority of currently non-performing targeted loans for small and medium-sized businesses were granted before the military aggression to companies that found themselves in the temporarily occupied territories of Ukraine. Lending to SMEs was resumed in April 2022. This contributed to the preservation of the loan portfolio. Despite the fact that during the 2 years of war, 70% of SME loans were repaid by borrowers, in March 2024, the bank was able to reach the pre-war lending volume,”
– elaborated Olena Yermolova.
As for mortgage lending, the rate of mortgage disbursement over the past two years has been significantly lower than the rate of repayment, which significantly reduces the portfolio of this type of lending .
Alarge percentage of non-performing car loans can be attributed, on the one hand, to a significant decrease in the volume of loans issued, especially in 2022 (currently, car loan repayments are almost the same as the rate of new loans), as well as to a significant number of loans issued before the start of the full-scale invasion of the territories occupied by the aggressor, said Globus Bank’s Board Member.
Predicting the situation with NPLs in the banking sector, the expert stressed that several important factors should coincide for their further reduction:
- improvement of the economic situation in the country
- controlled situation at the frontline;
- reduction of the discount rate as the main indicator of the cost of resources;
- increased financial capacity of citizens to take out and service loans;
- competition among financial institutions and the introduction of more loyal bank loan programmes for borrowers: longer maturity, lower down payment, etc.
“The main caveat to any forecasts is the war factor, as it is very difficult to predict its course and further impact on the economy, social and political situation in the country. Nevertheless, the banking sector expects that the overall situation will be more or less favourable not only for the gradual development of bank lending, but also for the reduction of non-performing loans,”
– summarised Olena Yermolova.
