13:07 29.04.2020

Public, business demand for loans plunges in Q1 2020, banks expecting further fall – NBU

4 min read
Public, business demand for loans plunges in Q1 2020, banks expecting further fall – NBU

Ukrainian banks note a significant reduction in the demand of the population and business for loans in the first quarter of 2020, and also predict a decline in this indicator in the next 12 months, according to the results of the Bank Lending survey conducted by the National Bank of Ukraine (NBU), which is posted on the regulator's website.

According to the survey, banks also expect the next 12 months a significant deterioration in the quality of the loan portfolio, increased risks, primarily credit, and a slowdown in the flow of customer funds.

As for loans issued to business in January-March 2020, the largest drop was observed for long-term loans and for loans in foreign currency, while the demand for short-term loans was slowly growing.

In the first quarter, business demand factors changed significantly, in particular, the influence of interest rates decreased, while requests for debt restructuring peaked from the third quarter of 2017. "It is this factor and the need for replenishment of stocks and working capital that are decisive for the credit demand of large enterprises," the NBU said.

At the same time, respondents said that there was a significant decrease in the demand of small and medium-sized enterprises (SMEs) for loans to replenish working capital and for capital investments.

According to banks, the decline in consumer demand for consumer loans is the largest since 2015. The demand for mortgages also fell sharply, but mainly in several major banks, while 38% of respondents indicated an increase in this figure.

"The decrease in demand for consumer loans was due to a decrease in spending on durable goods and the purchase of foreign currency. A decrease in consumer confidence and household savings played a key role in the decline in demand for mortgages," the NBU said.

According to the survey, in the second quarter, Ukrainian banks expect a significant decrease in demand both from enterprises – for loans in foreign currency and for long-term loans, and from the population – for mortgage and consumer loans.

According to the document, in January-March 2020, half of the respondents tightened business lending standards. The tightest were the requirements for loans to large enterprises and loans in foreign currency.

"Inflation, exchange rate and general economic expectations have most strongly affected the toughening of standards. In particular, exchange rate expectations are significant for SMEs, while expectations for the development of an industry or an individual enterprise for large enterprises," the National Bank said.

According to the report, in the first quarter, banks also toughened mortgage and consumer lending standards due to rising inflation risks and expectations of a decline in overall consumer activity and solvency. In addition, the stricter requirements on mortgage borrowers were affected by the cost of resources, balance sheet restrictions and exchange rate expectations.

In January-March this year, the level of approval of applications from both households and businesses has significantly decreased. Respondents plan to further significantly toughen lending standards for the population, according to the survey.

According to the survey, Ukrainian banks noted an increase in all types of risks in the first quarter, including credit risk that increased more than others (response balance increased to 55.6%), and liquidity risk grew less (to 36.7%).

In addition, expectations for the implementation of all risks over the next quarter also worsened and peaked from the second quarter of 2014. So, in the second quarter of 2020, Ukrainian banks expect that credit risk will increase the most (the balance of responses increased to 67%), and foreign currency will be less (grew to 34.9%).

The credit managers of 24 banks were surveyed between March 19 and April 9, 2020. The respondents' share in total assets of the banking system amounts to 99%.

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