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When we talk about the resumption of lending, we should use this word in quotation marks. The transition of the National Bank to a new cycle of tight monetary policy will preserve this negative trend and delay the economic growth.

In the recently published Bank Lending Survey, banks mention that corporate credit standards eased in the third quarter, while loan application approvals grew. 

According to the Survey, the expectations of rising demand for corporate loans have been record high since 2016.

The Survey also states that the demand for retail loans is still growing (with a focus on mortgages), and lending standards are being eased.

We can only welcome such positive news, especially considering that at least over the past two years businesses have suffered from a lack of credit funds.

However, this is just a survey. More importantly, what the statistics tell us, because when the NBU asks and answers are given by banks that are completely dependent on it, any surprise can happen, including wishful thinking.

Statistics show that outstanding loans to non-financial corporations increased by UAH 22.6 billion (3.1%) in January-September.

This happened exclusively due to an increase in the volume of hryvnia loans by UAH 73.1 billion (17.8%), while loans in foreign currency decreased by UAH 50.5 billion (16%) because of write-offs of non-performing loans (NPL) and changes of exchange rate.

Figure 1. Outstanding loans to non-financial corporations in 2018-2021

It would seem that the long-awaited “victory” is finally here. But not everything is actually so optimistic.

For some reason, the National Bank does not really mention the program “Affordable loans 5-7-9%”, but it should do it.

In 2021, the program significantly intensified due to changes adopted at the end of 2020: the program was extended to more businesses, conditions for lending for the quarantine were eased (interest compensation is set up to 0% for working capital loans) etc.

As a result, in January-September 2021, the program provided 17,000 loans worth UAH 47.4 billion, whereas in 2020 – 7.6 thousand loans amounting to UAH 17.4 billion.

Comparing the volume of loans under the program 5-7-9 (UAH 47.4 billion) with the increase in hryvnia loans of non-financial corporations (UAH 73.1 billion), we find that the revival in corporate lending was two-thirds “provided” by state budget funds.

In October, the program provided another UAH 3.5 billion in loans, and as of November 1, the total volume of loans under the program reached UAH 68.3 billion (from the beginning of 2021 – almost UAH 51 billion).

The conclusion is evident: without the 5-7-9 program, corporate lending would have remained unsatisfactory, to put it mildly.

Outstanding loans to household, after a slight decline last year, resumed their rapid growth in 2021.

The total volume of loans in January-September increased by UAH 33.9 billion (16.4%).

Here is the same logic as with corporate loans: loans in national currency increased by UAH 42.5 billion (24.4%), while there was a simultaneous decrease in loans in foreign currency by UAH 8.7 billion (27.1%), mainly due to write-offs of NPL.

Figure 2. Outstanding loans to households in 2018-2021
*              Other loans in national currency
Commercial real estate loans
*              Consumer loans in national currency

      Loans in foreign currency (total) – right scale
  • Other loans in national currency

Commercial real estate loans

  • Consumer loans in national currency

      Loans in foreign currency (total) – right scale

Consumer loans in hryvnia, the volume of which increased by UAH 35.2 billion (22.3%) in 9 months, are the lion’s share of the growth.

This type of lending is widely used by banks because of its high profitability.

According to a study of consumer lending banking practices conducted in April-July, the real annual interest rate on consumer loans for personal purposes (total loan costs, as a percentage per annum) averaged 121% per annum. The minimum is 52%, the maximum is 505%.

The study was conducted by the Growford Institute in cooperation with the Info Sapiens company for DAI Global LLC as part of the USAID Financial Sector Transformation project.

The National Bank (based on the survey of banks) reports a threefold increase in the volume of new mortgage loans this year compared to last year: in January–August 2021 their volume amounted to UAH 5.2 billion.

At the same time, statistics show that outstanding mortgage loans in hryvnia increased by UAH 4.5 billion (33.3%) to UAH 18.2 billion in 9 months. Their share in the total volume of hryvnia loans to households has increased from 7.8% to 8.4% since the beginning of the year.

That is, being happy at the intensification of mortgage lending we should understand that its volumes are still meager.

This is not surprising, since the effective rate on mortgage loans is 15.9% in the primary and 13.6% in the secondary markets.

On March 1, 2021, an “Affordable Mortgage 7%” program was launched: in eight months (as of October 25), banks signed 977 loan agreements totaling UAH 845 million.

On October 21, the Cabinet of Ministers adopted Resolution No. 1106, which, in particular, simplifies the requirements for the subject of the mortgage. This can additionally push the lending under this program.

2021 was the third year of a dynamic reduction in the portfolio of non-performing bank loans.

In January-September, the total amount of NPL decreased by UAH 56 billion mainly due to the “dollar” component. As a result, the share of NPL in total loans decreased from 41% to 33.3%.

At the same time, the volume of performing loans increased by UAH 132.1 billion in nine months, in particular, in hryvnia – by UAH 127.4 billion, in foreign currency – by only UAH 4.7 billion.

Of these UAH 127.4 billion of increase in performing loans in hryvnia, loans to corporate borrowers account for UAH 80.4 billion and to individuals – UAH 45.9 billion.

Figure 3. The volume of performing loans and NPL in 2019-2021 

Summing up, we should state a positive trend in the resumption of bank lending in 2021 after the stagnation of the credit process during 2019 – 2020.

This positive change is largely due to the stimulating effect of government programs that are implemented at the expense of taxpayers.

However, there is one unfortunate circumstance.

Despite the rather high growth rates of loans in January-September 2021, they continue to drop in relation to GDP for the seventh year in a row.

The ratio of total loans to GDP fell from 22.9% in 2020 to 18.9% in January-September 2021, including loans to non-financial corporations – from 17.5% to 14.2%.

Given that 39.7% of loans to corporations as of October 1 were classified as non-performing, the ratio of existing corporate loans relative to GDP is a miserable 8%.

Figure 4. Level of loan coverage of GDP

    Ratio of the loans to GDP

    Ratio of the loans to non-financial corporations to GDP

Therefore, when we talk or write about the resumption of lending, we should use this word in quotation marks.

The transition of the National Bank to a new cycle of tightening monetary policy will preserve the abovementioned negative trend and will delay the resumption of a dynamic economic growth.

Founder and Chairperson of the Board of the Growford Institute Vitalii Lomakovych for Business.Censor.