The present and the future of the Ukrainian financial system

Hrant BagratyanBudapest 2013

Contents

1. General overview2. Structure of the Ukrainian financial system3. Ukrainian commercial banks 4. Insurance market and non state pension

funds

1.1. General overviewTop 20 economies by GDP 2010 and Ukraine, bln of current USD

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4000

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8000

10000

12000

14000

16000

USA

China

JapanG

ermany

FranceU

KB

razil

ItalyIndiaC

anadaR

ussiaSpainM

exicoSouthA

ustralia

Netherlands

Turkey

IndonesiaSw

issPolandU

kraine

3http://data.worldbank.org/indicator/NY.GDP.MKTP.CD

1.2. Disproportional developments among the subjects of the worlds economy.Top 20 economies by per capita GDP, Poland, Russia, Ukraine

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Lichtenstein

Luxem

bourg

Norw

ay

Sw

iss

San M

arino

Denm

ark

Sw

eden

US

A

Netherlands

Canada

Ireland

Andorra

Austria

Finland

Singapore

Japan

Australia

Germ

any

Iceland

France

Poland

Russia

Ukraine

4http://data.worldbank.org/indicator/NY.GDP.PCAP.CD

5

1.3 The essence of economic growth: cumulative economic growth

• In 1990-1999 Ukraine’s GDP decreased 8.8% a year. As a result by 1999 the country’s GDP was only 40.8% of 1990’s level. In 2000-2007 GDP increased 7.1% per year. As a result GDP increased up to 72.5% of 1990’s level.

• In 2008-2012 the country’s GDP decreased up to 69.1% of 1990’s level.

• http://data.worldbank.org/topic/economic-pol

• icy-and-external-debt; www.ukrstat.gov.ua

66

1.4 But …

• The country shows very good performance in high-tech (by example, one of the best figures on cellular phones; Ukraine’s cultivated arable land in 2009 was 270.000 he, while Russia only 3000)

• It’s educated better than world average• High number of internet users• The best figure in the world in mobile subscribers

2.1. The structure of the Ukrainian financial system (2011), assets, in % to GDP

(http://www.bank.gov.ua/doccatalog /document?id=121942 ; http://www.dfp.gov.ua/734.html)

Financial organizations USA Ukraine

1 2 3

Commercial banksNon state Pension funds

Insurance companiesMutual and investment funds, credit unions and

other financial companies

26,328

12,7

33

92,20,016,5

1,3

2.2. Synopsis

• The banking system practically absorbing all savings• Labor productivity in banking sector less than in

Europe but equal to Russia • NPF aren’t developed and state pension fund (193

bln UAH = 50% of the consolidated budget expenses) is a permanent threat for the country’s public finances

• There is a shortage of instruments to create long-term investment money, mutual funds and other investment institutions – unable to provide them

9

2.3. Assets and liabilities of Ukrainian banks, bln UAH, www.bank.gov.ua; http://www.ukrstat.gov.ua/

Assets Liabilities

Total % of GDP Total % of GDP

01.01.200901.01.201001.01.201101.01.2012

889917

10901212

9410010192

771784942

1054

81868780

2.4. Inflation and Spread between deposits and loans, http://www.bank.gov.ua/doccatalog/document?id=260214; «Бюлетень Національного Банку України»

Figures Years

2008 2009 2010 2011 2012

1 2 3 4 5 6

CPI 122,3 112,3 109,1 108,0 100,6

Average % on deposits, UAH, households

10,7 15,3 12,7 13,8 19,6

Average % on loans, UAH, households

25 26 26,6 22,8 29

11

2.5. Reserve to cover possible losses on credit operations,% of all

reserves under active operations of banks

01.01.2007

01.01.2008

01.01.2009

01.01.2010

01.01.2011

01.10.2011

3.6% 3.08% 4.81% 11.27% 11.99% 12.06%

2.6. Geographical controversies of liabilities and assets of banking system, 2010

Regions Per capita GRP, UAH thousand

Per capita deposits, UAH thousand

Per capita loans, UAH thousand

1 2 3 4

Kiev obl and city…

Chernovetz…

Zakarpatya…

Jitomir

45848…

9382…

10055…

11518

35617…

3080…

2299…

2850

78568…

5550…

5511…

3651

The average for Ukraine

19551 8448 15835

2.7. Distribution of deposits and loans between households and NFC’s in 2005-2011, UAH million,

http://www.bank.gov.ua/Publication/econom/Buleten/2010/bull_12-10.pdf.

Years Resident’s deposits Resident’s loans

Total Deposits, NFC

Deposits, Househol

ds

Total Loans,NFC

Loans,Househol

ds1 2 3 4 5 6 7

2005 134754 50976 74778 143423 106078 35659

2006 185917 65614 108860 245230 160503 82010

2007 283875 95583 167239 426867 260476 160386

2008 359740 118188 217860 734022 443665 280490

2009 334953 94796 214098 723295 462215 241311

2010 404214 115175 264488 733181 494146 217361

2011 466042 131716 301128 773692 543500 208444

CountryPast due (Overdue) /

total loansProvisions (reserves)

for risks / total overdue loans

Capital adequacy

2006 2008 2006 2008 2006 2008

Austria 2,1 1,7 75,3 76,4 11,8 11,7Belgium 1,7 1,5 50,8 64,0 11,9 12,9France 3,0 2,7 62,9 61,4 10,9 10,1Germany 3,4 2,7 71,4 77,3 12,5 12,9Greece 5,4 4,7 60,9 - 12,2 10,4Italy 4,9 4,6 46,0 49,5 10,7 10,4Norway 0,6 0,8 74,2 50,8 11,2 11,4Portugal 1,2 1,3 83,9 75,7 11,0 10,2Spain 0,7 3,2 272,2 71,3 11,9 11,3Sweden 0,6 0,5 78,5 79,9 10,0 10,2Average 2,4 2,4 87,6 67,4 11,4 11,2

2.8. Figures of financial stability of European banking systems, %

2.9. Dynamics of credit risks of Ukrainian banks in 2002-2010, bad loans in the portfolios of banks in Ukraine

2002 2003 2004 2005 2006 2007 2008 2009 20100

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5.8

4.52

3.4 3.32

2.11.6 1.3

2.2

9.36000000000001

Частка проблемних кредитів у кредитному портфелі банків України, %

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2.10. Synopsis

• Ukraine's loan portfolio of banks only 60.3% is formed from its own resources (deposits, interbank loans within the country). The external debt of the banks and NFC in 2012 was 56,3% of GDP.

• The inflation decreases but the Interest paid to the deposits increases and the interest paid for loans getting up to 29%.

• The spread between deposits and loans in 2012 reduced showing certain positive dynamics

• Further increase on reserves and capital requirements essentially decrease the capacity of the economy to finance the growth

• Poor regions are financing relatively rich (central) regions, the concentration grade of the economy permanently increases

• Big companies permanently increase their specific weight in the Ukrainian financial market

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3.1. Insurance market development, http://www.iii.org/; http://www.dfp.gov.ua

Country Assets of IC, bln USD

IC’s assets to GDP, %

Insurance premiums, bln USD

Specific weight to the world’s data,

%

USA 5310 45.2 1097.8 33.84

Japan 3533 66.9 492.4 15.18

UK 1885 96.5 246.7 9.09

France 1413 63.0 194.6 6.00

Germany 1372 45.5 190.8 5.88

Ukraine 7.2 6.5 2.8 <0.1

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3.2. The insurance penetration level of the GDP of

Ukraine. Isurance premiums to GDP, %, 2009

0

1

2

3

4

5

6

7

8 CanadaGermanyCzechPolandHungarySloveniaBulgariaRussiaGreeceRomaniaTurkeyUkraineKazakhstanNigeria

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3.3 Consolidated structure of investment portfolio world’s top 5

pensions funds, 2006, http://www.watsonwyatt.com/europe/research/pdf/PI_300_Analysis_2007.pdf

0%10%20%30%40%50%60%70%80%90%

100%

Japan (GPIF),936bln,$

Norway (GPF),285

Netherlands(ABP), 273

USA(CALPERS),

218

Korea (NP),203

Deposits

Real estate

Short term assets

Stocks

Bonds

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3.4. Consolidated structure of investment portfolio of Ukrainian pension

funds, end of 2010, %, http://www.kmu.gov.ua/control/en/publish/article?art_id=22835607&cat_id=73035

0 20 40 60

Securities

Deposits

Preciousmetals

Real estate

Others

Series1

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3.5. The structure of the investments of pension funds in the world and Ukraine: reverse influence

making long money to short

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30

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50

60

World

Ukraine

3.6. Insurance – synopsis

• Very low level of development• Unreasonably high specific weight of deposits

in assets• Limited capacity to accumulate means• Dominations of state pension system• Limits on cash generation