Ukraine

The year 2021 was not as favourable for the Ukrainian economy as it seemed to promise at first. Following the GDP drop in the first quarter (-2.2% y/y), which was related to another wave of the pandemic (and the respective restrictions), the next two quarters showed an increase in activities (of 5.6% y/y and 2.7% y/y in the second and third quarter, respectively). The frequently published data indicates continued economic expansion in the fourth quarter, but at a level lower than before the pandemic. During the year, the retail trade was recovering from pandemic losses, and in the second half of the year its growth became more stable at a level lower than before the pandemic (6-7% y/y compared with approx. 13% y/y before March 2020). Also the industrial production remained only slightly positive. In total, over the year, the economic growth could exceed 3%, which did not allow for the Ukraine (despite economic revival) to recover the losses of 2020, when its economy shrunk by 4.0%.

The nominal dynamics of wages and salaries returned (for a while) above 20% y/y, but further in the year, it dropped below this level. At the same time, inflation accelerated to above 10%, mainly due to growing prices of food (a two-digit inflation rate in the second half of the year) and fuels. The core inflation increased from 4.5% y/y in December 2020 to 7.9% at the end of 2021. As a result, the actual increase in wages and salaries in the fourth quarter of 2021 (6% y/y in October-November) was lower than a year earlier (9.6% y/y).

The National Bank of Ukraine (NBU) fought inflation by increasing interest rates (five times: in March, April, July, September and December), overall from 6.00% to 9.50%. The tightening of the monetary policy reinforced the UAH exchange rate. The UAH/USD exchange rate was 27.28 at the end of the year, compared with 28.34 at the end of 2020.

The economic revival stimulated tax revenue. The dynamics of PIT revenue increased to nearly 20% y/y, and VAT and CIT exceeded 50% y/y. It allowed a reduction in the budget deficit (to -1.3% of GDP after November, compared with -2.8% of GDP in the same period of 2020), despite increased spending. The ratio of the public debt to GDP went down to 50.1% at the end of November 2021, compared with 60.8% at the end of 2020.

According to data from the NBU, the number of banks which engaged in operations in Ukraine dropped to 71 in November 2021 (compared with 74 in December 2020).

The value of total assets in the Ukrainian banking system in 2021 increased to UAH 1.98 trillion (as at 30 November) from UAH 1.82 trillion (as at the end of 2020). Equity increased to UAH 244.1 billion from UAH 210.6 billion and as at the end of November 2021 they comprised 12.3% of the balance sheet total, compared with 11.6% as at the end of December 2020. The Ukrainian banking sector remains well capitalized (as at the end of 2021, the capital adequacy ratio of the sector amounted to 18.01%, compared with the minimum requirement of 10% and 22% at the end of 2020), whereas there are concerns that the ratios of 8/13 of banks with systemic relevance were below this level. December brought a clear drop in the capital adequacy ratio from 21.44% as at the end of November 2021.

The year 2021 can be the first year since 2018 in which the volume of loans increased. After November, it was UAH 107.3 billion higher than at the end of 2020 and amounted to UAH 1,086 billion. This was despite the drop in the value of currency loans (among other things due to the reinforcement of the UAH exchange rate). The sources of growth were consumer loans (an increase of UAH 44.1 billion from the end of 2020 to November 2021), loans for private non-financial enterprises (an increase of UAH 43.6 billion over the same period) and loans for the public sector (an increase of UAH 13.7 billion).

At the end of November 2021, the volume of deposits was UAH 100.8 billion higher than at the end of 2020 and amounted to UAH 1,471.4 billion. In this period, deposits of private enterprises went up by UAH 51 billion, and deposits of households increased by UAH 26.7 billion. The volume of currency deposits decreased. The loan to deposit ratio increased to 73.8% as at the end of November 2021, from 71.4% as at the end of 2020.

Profitability ratios returned to levels close to those of 2019: ROA (3.81% after November 2021, compared with 2.44% in 2020) and ROE (32.9% after November 2021, compared with 19.22% in 2020).