Macroeconomic situation
Since early 2006 the Ukrainian economy has been experiencing a robust growth with GDP rising quickly at 7% p.a. Factors like: massive foreign investments (9 bn US$ FDI in 2007), improved results of enterprises, low unemployment and rising wages have contributed to significant economic expansion. Only within last three years the country's GDP has doubled (in EUR terms), while the GDP per capita reached EUR2400 (as of 1H2008). Unfortunately also some unwanted side-effects of quick growth are increasingly apparent. The accelerating inflation (29% yoy in June 08) and mounting C/A imbalance negatively affect the economy and may pose a significant threat for future stability.
Banking sector
The latest development of banking sector reflects current condition of Ukraine’s economy. Banking assets more than doubled (in EUR terms) during last two years. Retail banking business expanded particularly fast, especially driven by mortgage and consumer lending. High and stable interest margins and increasing commissions, including bank cards fees contributed to significant growth of sector profit pool. In 2007 the combined net revenue of banks operating in Ukraine amounted to EUR 5.5 billion while the combined profit after tax approached EUR 1 billion. Unfortunately most banks are increasingly suffering from bad loans write-offs. The credit loss of all banks in 2007 exceeded EUR 1 bn and it is likely to increase in 2008.
Market structure
Ukrainian banking sector is still extremely fragmented. With 178 licensed banks in the country and very low concentration ratios (HHI* Index =332) the market is still awaiting a phase of consolidation. The recent entry of various foreign players (24 significant M&A transactions during 2006-2008) has not significantly changed the market structure so far. Among 12 major banks (ranked by assets) there are 6 controlled by foreign investors, 4 remain in hands of local individuals/corporates and only 2 are publicly owned.
Future prospects are good. In our base scenario we assume that the Ukrainian economy will sustain GDP growth accompanied by relatively high inflation, which will convert into a quite positive climate for the banking sector. We expect that the total banking assets will exceed UAH 1.3 trillion through 2010. In the mid term perspective retail banking is likely to be the key driver of growth with strong consumer lending and mortgage expansion. Interest margins are likely to inch higher, being supported by rising nominal interest rates due to inflation.
