Ukraine at War: Recent Economic Developments

NBU: In Q3 2023, banks are planning to ease lending conditions for small and medium-sized businesses and the public, especially regarding mortgage loans. This comes as a result of increased demand for consumer loans and approved business loan applications since the beginning of the full-scale invasion. While banks still expect some deterioration in the quality of the business credit portfolio, the negative expectations have been gradually decreasing. Credit standards for both businesses and households have been softened, and the number of approved applications for loans is on the rise.

KSE: Since the start of the war, the Ukrainian agricultural land market has incurred losses of UAH 11.5 B. However, opening the market for legal entities from 2024 could result in an annual increase of 1-2.7% in GDP over the next three years. Due to the Russian invasion, over 102,000 agricultural land purchase agreements with a total volume of 282,000 hectares and a value of UAH 11.5 B were not completed. The Kharkiv region suffered the highest losses, while regions like Zakarpattia, Ivano-Frankivsk, and Chernivtsi have shown a recovery in land transactions.

DGF: In H1 2023, the DGF disbursed UAH 1.8 B to depositors of banks under its management, with an additional UAH 40.2 M reimbursed in June 2023 alone. During the period of martial law and three months after its termination, a 100% guarantee for bank deposits was in place, ensuring full compensation for depositors of insolvent banks. As of July 1, 2023, the Fund has paid a total of UAH 98,621.8 M to depositors of banks transferred to its management since the enactment of the law on deposit guarantees in 2012. Including pre-2012 payments, the total guaranteed compensation payments since the Fund's establishment have reached UAH 103,308.2 M. During the same period, the Fund completed the liquidation procedures of 51 banks and is currently in the process of liquidating 53 more banks.

Interfax-Ukraine: Ukraine is working with Israeli experts to ensure the safety of civil aviation flights in the face of potential drone and missile attacks. Ryanair is considering two plans for resuming flights from Ukraine, with the most likely scenario being a small number of flights launching by the end of 2023. The airline believes that flights to Kyiv, Lviv, and Odesa will be safe to operate soon, and the main destinations for these flights will include major European cities like Warsaw, Berlin, London, and Paris. Ryanair is prepared to deploy 10 planes in Kyiv, five in Lviv, and possibly one or two in Odesa, with plans to double the fleet size over the next 2-4 years as traffic increases.

NBU: The NBU plans to cap payday loan interest rates as part of its efforts to address the issue of non-performing loans. To achieve this, the NBU aims to encourage payday lenders (MFIs) to pay more attention to the solvency of their clients and adjust their scoring models to minimize the risk of loan non-payment. The NBU hopes that such measures will put an end to the practice of issuing multiple loans to insolvent borrowers, relying on the assumption that their relatives will repay the debt. If the intended rate reduction does not yield the desired results, the NBU may consider implementing additional requirements for assessing borrowers' solvency by MFIs. Previously, the Verkhovna Rada registered a draft law proposing a gradual reduction of the maximum daily rate for payday loans to 1%, while the NBU initially suggested a cap rate of 0.8% per day, taking into account local risks for creditors.

NBU: Banks in Ukraine reported a significant growth in client funds in Q2 2023, while wholesale funding has been declining since the onset of the full-scale invasion. The increase in the volume of clients' funds was largely driven by higher interest rates on deposits, along with regulatory requirements and changes in funding structure. Banks are anticipating further growth in liabilities in Q3 due to inflows of funds from both the public and businesses. However, the majority of respondents do not plan to attract wholesale funding in the future. The average cost of funding increased during Q2, with 95% of banks noting an increase in deposit rates for households. Banks expect household deposits to continue increasing in Q3, while business funds may become cheaper. While the cost of capital has been high over the past year, banks expect some reduction in the cost of capital in the future.

NBU: If the "Grain Corridor" were operational in the country, the export of products in H2 2023 would have been increased by approximately USD 2 B. The NBU predicts that Ukrainian agricultural exporters will still be able to export all intended products during the entire marketing year, which spans from July of this year to June of the following year. This includes grains, oil, and other agricultural products.