The National Bank of Ukraine (NBU) predicts that in 2017 additional capitalization of state-run banks will be finished and the banking sector will be completely cleaned up.

"It is expected that in 2017 the sum equivalent to less than 1% of GDP will be sent to increase the charter capitals of Ukreximbank and Oschadbank and support the Individual Deposit Guarantee Fund," the NBU said in a report on financial stability published on Tuesday.

The central bank said that after the completion of the additional capitalization the state-run banks are to become profit-making. This would help to avoid extra payments to reserves and capital injections.

The NBU recalled that early this year the Finance Ministry approved a strategy for development of state-run banks. It says that each of three largest banks belonged to the state (Oschadbank, Ukreximbank and Ukrgasbank) will work in own segments and credit state-owned companies observing the central bank's prudential requirements.

"State-run banks should start gradually switch from support of state-owned enterprises to crediting of the market business and population within some targeted segments," the NBU said.

Public agencies and state-run enterprises' share of assets and liabilities of state-owned banks is large. In October 2016, the share of government domestic loan bonds was 26% compared to 17% as of early 2016 and 19% as of early 2015 and 2014, while the share of credits and securities of state-run companies and public agencies fell to 12% from 14% as of early 2016 and 19-20% as of early 2015-2014.

Funds of state-run companies in banks' liabilities grew by 21% in October 2016 compared to 17% as of early this year, 12% as of early 2015 and 10% - 2014. The budget funds grew to 5%, while it stood at 1% as of early this year, 2015 and 2014. The share of NBU's funds fell to 1% from 6% as of early 2016, 13% - early 2015 and 20% - early 2014.

"Extra crediting of state-run companies state-owned banks practiced for many years makes them hostage of the process: instead of looking into new and attractive private borrowers they continue crediting state-owned corporations. This creates risks both for banks due to large concentration of credits and for the banking system in general," the NBU said.