Fall in banks' income from operations forms preconditions for expansion of M&A deals, say experts
Kyiv, April 6 (Interfax-Ukraine) – The fall in income from the operations of credit and financial institutions, along with the continued high level of bad credits, is driving merger and acquisition (M&A) deals in the Ukrainian banking sector, according to experts of the Expert-Rating agency.
"We forecast that the second half of 2012 will see trouble for the system if the economic situation does not change for better and economic growth does not accelerate," the senior financial analyst at Expert-Rating, Vitaliy Shapran, said at a press conference at Interfax-Ukraine on Tuesday.
The experts' conclusions were formed during the preparation of the sixth annual (Pi) banks reliability rating for 2010: the rating includes 87 out of the 175 operating banks in the country.
Expert-Rating said that continuing of a downward trend could lead to the withdrawal of several banks from the market: the bad assets share of total credit portfolio of banks is around a third.
"We see that for some banks, mainly those from the third and fourth group [medium and small banks], the situation would be ruinous. They would have to reduce liquidity and send money to the real sector to increase their net income from interest or to attract money from shareholders," he said.
"I'm sure that not all banking institutions of the third and fourth groups would be able to cope with the trends and obtain the support of shareholders," he said.
The expert said that in 2010 most financial institutions actively sent funds to liquid assets (government bonds), which did not ensure enough profitability level to cover expenses.
"Expert-Rating forecast that the first half of 2011 will be a failure for most bankers from the point of view of income from operations.
"The forecast for the longer-term outlook depends on the pace of recovery of the Ukrainian economy. We stick to the scenario that the recovery will be very slowly and GDP growth of 4-5% would not give the banks a chance to quickly deploy crediting programs, so a certain excess of funds would exist on the market," reads the report of the rating agency.
As for the undated (Pi)-rating, Shapran said that the results of a group of state-run banks were most unsuccessful: these include the ratings of Ukreximbank, VTB Bank (a subsidiary of Russian state-run VTB Bank) and Subsidiary Bank of Sberbank of Russia.
"I don't think that this should be a cause for alarm for depositors. But it is likely that it will cause alarm in the government," he said.
He said that the prices of property in Ukraine would continue falling.
"As soon as credits are in demand in the system, the fall in the price of property will stop. We don't seed this trend [however]," he said.
Shapran said that the reduction of supply of government domestic loan bonds would encourage a revival of crediting.