In June the credit portfolio of banks shrunk by UAH 27 bn

Builders do not use bank loans because they are too expensive

Photo: Konstantin Melnitskiy

The volume of loans issued by commercial banks in June decreased compared to May by more than UAH 27 bn to UAH 975.6 bn, the NBU reported. The decrease was largely attributed to loans to companies: the credit portfolio of legal entities decreased by UAH 20.6 bn to UAH 975.6 bn. In June last year, the banks, conversely, increased the volumes of loans to businesses. That month their credit portfolios grew by UAH 8 bn and loans increased to UAH 647 bn.

The problem is inside

The anti-terrorist operation in the eastern regions of Ukraine is one of the negative factors that influenced the volume of loans issued to businesses, says CEO of Ukrgasbank Serhiy Mamedov. “The combat actions have significantly influenced the desire of legal entities in all eastern regions of Ukraine to apply for loans,” says Mamedov. Moreover, companies in the eastern regions of the country traditionally accounted for a large share of loans, notes Chief of Development and Promotion of Products for SME at National Credit Bank Borys Sharipov. Today, says Mamedov, economic growth is slowing down. As a result, many companies are optimizing their expenses and are not planning to expand their business in the foreseeable future.

Costly affair

Also, high interest rates on loans for the corporate segment had an impact on the slowdown in lending. Real interest rates on loans for legal entities are currently 27-28% per annum, Deputy General Director for Marketing and Strategy at TMM Oleksiy Hovorun noted. “Under such conditions long money is not profitable for anyone in Ukraine,” he emphasized.

Despite the fact that loans are expensive, companies are forced to borrow money from banks. “In the current economic and political situation it is practically impossible for a public Ukrainian company to attract resources of foreign investors. Nobody, even the government, will provide guarantees of return of such investments, particularly if we are talking about large sums of investments,” says Hovorun.

He says companies simply have no choice but to invest their own money or use the funds borrowed on unattractive terms. “Speaking about the construction industry, the current interest rates are totally overwhelming. For the several years that it will take to build a residential building, the cost of payments on the loan will increase by a minimum of 50%,” warns Hovorun. As a result, the developer will be forced to seek ways to increase profitability and place the burden of these expenses into the price of a square meter for the end consumer, he believes. “However, rates should not be the only point of discussion; there is also the readiness of a bank to provide a loan that should be considered. Many financial institutions only declare lending,” admits Sharipov.

Slight drop

The real growth of lending can be expected only after the interest rates are considerably reduced, says Director of Corporate Business at Fidobank Natalia Lavryk. Further stabilization of the situation in the banking sector and gradual restoration of the trust of clients, mostly individuals, will facilitate this process, the banker believes. A similar process already began in May-June and renewal of the inflow of deposits into banks is a proof of that. In June deposits in hryvnia increased by UAH 560 mn. “In its turn, this allowed the banks, which replenished their deposit accounts, to start reducing the rates on deposits in July. However, it will take a bit of time, as a rule, from three to six months, for a similar reduction of interest rates on loans,” says Lavryk.

According to the National Bank of Ukraine, a trend of the lowering of interest rates on bank loans is already being observed, notes acting Executive Director of the Independent Association of Banks of Ukraine Olena Korobkova. For instance, the average weighted rate on loans in hryvnia amounted to 16.94% in June, which is 0.72 percentage points less than in May.