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04.02.2008
Ukraine`s banking to maintain high growth rates, yet risks remain significant
In Credit-Rating`s view, the national banking system will maintain high growth rates in 2008. Considering tightened requirements for capitalization, the banks will likely to expand their authorized stocks and operations with affiliated parties. Thereat, the proceeds from operations will shrink. Possible injections of foreign capital will empower banks to widen the volume of loan operations primarily in retail segment. Moreover, the attraction of long-term funds from international and other financial institutions after turbulence in international markets abate will spur growth of specific gravity of long-term loans.
At the same time, Credit-Rating notes risks of the banking system remain significant which may affect solvency of a number of the institutions. Firstly, the augmenting positions of the 1st and 2nd group banks, which enjoy sufficient capacity for funding leading national companies and expand their retail segments, makes smaller banks compete in more risky niches. Banks` striving to broaden their market shares spurs growth in banks` loan portfolios, which often lead to failure in control of their quality. Secondly, the trend of growth in foreign currency lending and increased disbalance between placed and attracted funds by the redemption terms and currencies is expected to retain, which, however, is partially compensated with the ability of some banks to attract funds in foreign currencies in the form of syndicated loans, IPO, Eurobond issues, and increased stocks. Thirdly, high level of concentrations in loan portfolios of large number of banks, accompanied by lending the affiliated parties increases the liquidity risks and affects negatively the spare capital, which stiffens banks` financial flexibility.
Growth of the banking system will be constrained by increasing competition between banks and quasi-banking institutions (credit unions) and strengthening control from the regulators - all of that may weigh on banks` resource base.
The present risks are not crucial, since the National Bank of Ukraine has sufficient capacity to underpin the liquidity of the banking system, Andrey Konoplyastiy, head for Credit-Rating`s financial sector said.
For more information, please contact:
Information and Communication Department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.com.ua
