The National Bank of Ukraine (NBU) has issued its latest Financial Stability Report, affirming that the country’s banking system remains robust and resilient. Key indicators show a calming market sentiment and steady economic recovery, bolstered by successful debt restructuring and external support.
Financial Resilience in the Face of Adversity
Economic Stability and Market Sentiment
The Index of Financial Stress, a critical metric developed by the NBU, reflects a significant easing of market tensions in the latter half of 2024. This positive shift is largely attributed to the reduced interest rates on Ukrainian bonds and Eurobonds following effective debt reorganization efforts. The central bank's actions have not only stabilized the financial sector but also instilled confidence among investors and stakeholders. The stability of Ukraine's financial system is further underscored by the decreasing volatility in bond markets. Analysts point out that this trend is likely to continue as long as the government maintains its disciplined fiscal policies. Additionally, the G7's Extraordinary Revenue Acceleration (ERA) Loan provides crucial support for Ukraine's budget, ensuring that public finances remain on a stable path into 2025.Inflation Dynamics and Future Projections
Despite higher-than-expected inflation rates, experts believe this surge is temporary. According to Pervin Dadashova, Director of the NBU Financial Stability Department, inflationary pressures are expected to ease significantly after the new harvest enters the market mid-next year. This outlook is supported by historical data, which shows that agricultural production plays a pivotal role in moderating price levels.Moreover, the NBU anticipates that inflation will stabilize as domestic demand normalizes. While there was a noticeable dip in consumer spending during the conflict period, recent trends indicate a gradual return to pre-war levels. The central bank's monetary policies are designed to ensure that inflation does not spiral out of control while supporting sustainable economic growth.Domestic and External Demand Driving GDP Growth
Steady domestic and external demand is projected to fuel Ukraine's GDP growth in 2025. Kateryna Rozhkova, First Deputy Governor of the NBU, highlighted that although domestic demand experienced fluctuations in recent years, it has shown signs of recovery without overheating. This balanced approach is crucial for maintaining economic momentum without triggering inflationary risks.External factors such as international trade agreements and foreign investment are also contributing positively to Ukraine's economic landscape. The NBU's strategic focus on fostering a conducive business environment is paying off, with corporate and retail deposits returning to growth. The net hryvnia corporate loan portfolio saw a substantial increase of over 20% within a year, signaling renewed confidence in the banking sector.Business Recovery and Loan Market Trends
After a period of seasonal volatility, businesses in Ukraine are demonstrating resilience and optimism. Corporate and retail deposits at banks have resumed their upward trajectory, reflecting improved financial health and consumer trust. The retail loan portfolio expanded by more than 30%, indicating a growing appetite for credit among households.Notably, the reliance on concessional loans is diminishing as more companies regain the ability to secure financing at market interest rates. This transition marks a positive development, as it suggests that many businesses have recovered sufficiently to operate under normal market conditions. The NBU's targeted support programs are now focusing on those who still require assistance, ensuring that resources are allocated efficiently.
