Risks of bank sector slightly decline in six months – NBU
Risks of the banking sector have generally decreased slightly over the six months, in particular since June, credit risk and capital adequacy risk have decreased by one point each, to 6 points, according to the data of the financial stability report published on the website of the National Bank of Ukraine (NBU).
According to the document, credit risks were realized to a lesser extent than the NBU expected, in particular due to the flexible restructuring of loans and state support, however, it is expected that part of credit losses will still be recognized in 2021.
Capital adequacy risk decreased by one point due to additional capitalization of a large state bank. It is noted that banks should prepare for lower yields and the introduction of new capital requirements.
At the same time, the legal risk has grown by one percentage point since June, to 8 percentage points, which is due to conflicting court decisions and the cancellation of anti-corruption reforms agreed with the IMF.
According to the regulator, foreign exchange risk, liquidity and profitability risks remained at the June level and amounted to 5 p., 3 p. and 6 p. respectively.
It is indicated that the maintenance of liquidity risk at the level of June 2020 is due to a high liquidity reserve, confidence in banks and a propensity to save, although the level of term deposits was reduced.
According to the report, banks are resistant to exchange rate fluctuations, and the share of foreign currency deposits remains high, although the ability to invest them is limited.
According to the NBU, banks' commission incomes have resumed, interest rates have not dropped significantly, but the central bank expects that the interest rate spread will narrow, and reserves will put pressure on profits. It is noted that the higher operational efficiency of banks can partially offset the risks.