Ukrainian market

An increase in wages and salaries enables maintaining a strong (albeit lower than in the previous year) increase in consumption. The increase in minimum wages (from UAH 3200 to UAH 3723) was significantly lower than in the previous year (from UAH 1550), but the average wage increased by 20.5% y/y (compared with 35.6% in 2017). After accounting for inflation, which was lower than in 2017 (prices increased by 9.8% y/y in 2018 compared with 13.7% y/y in the previous year) the drop in dynamics of real wages and salaries was even lower.

In 2018 a significant increase in CIT revenues was noted in public finances (44.8% in 2018 compared with 23.1% in 2017), which indicates an improvement in the collectibility of this tax. This, in addition to the robust (albeit lower than in 2017) increase in revenues from VAT and PIT, allowed maintaining a budget surplus nearly throughout the year (in terms of the whole public finance sector), which with the high increase in nominal GDP translated into a reduction in the ratio of public debt to GDP to 62.2% after September, from 72.7% in the previous year. Throughout the year the Central Bank reduced its participation in the structure of holders of Treasury securities to the benefit of banks which preferred investing their free flows in safe assets.

Despite the drop, inflation (9.8% y/y in December) continued to exceed the inflation goal of the Central Bank (6% +/-2 p.p. as at the end of 2018). Base inflation also dropped and amounted to 8.7% y/y as at the end of 2018 compared with 9.5% y/y in the previous year. The Central Bank increased interest rates four times, by 350 b.p. to 18%. In effect, despite the global trend of strengthening the exchange rate of the US dollar to currencies of rising economies, in 2018 the exchange rate of the hryvna dropped (the hryvna’s position improved) to UAH 27.69/USD 1 from UAH 28.07/USD 1 as at the end of 2017; in the first half of 2018 the exchange rate was approx. UAH 26/USD 1 (after three increases in rates at the turn of 2017/2018), whereas in the second half of the year it deteriorated to approx. UAH 28/USD 1.

In accordance with the data from the National Bank of Ukraine the number of banks which engaged in operations in Ukraine dropped to 77 in November 2018 (compared with 82 in December 2017).

The value of total assets in the Ukrainian banking system dropped slightly to UAH 1.32 billion (as at the end of November 2018) from UAH 1.34 billion (as at the end of 2017); equity dropped to UAH 149.4 billion from UAH 163.6 billion, at the end of November 2018 it comprised 11.3% of total liabilities and equity compared with 12.2% as at the end of December 2017.

In the period from January to November 2018 the volume of loans increased (by UAH 109.8 billion to UAH 1172.9 billion). This change was due almost equally to two factors: an increase in foreign currency loans (of UAH 57.1 billion) and loans in hryvnas (of UAH 52.6 billion). In terms of the structure of the entities that took out the loans almost all of the increase was due to loans taken out by residents, including approx. 2/3 by private enterprises, and 1/3 by households. In the period under discussion the value of deposits increased by UAH 7.5 billion (to UAH 937.9 billion), with a drop in the volume of foreign currency deposits of UAH 9.1 billion. The main driver of the growth in deposits was the household sector, whereas State enterprises‘ deposits dropped significantly. The loans/deposits ratio increased to 125.1% as at the end of November 2018 from 114.3% in December 2017.

In the period from January to November 2018 both ROA and ROE improved (1.66% compared with –1.93% and 14.32% compared with -15.84% respectively). The capital adequacy ratio in the sector was 15.5% at the end of November 2018 (the level required in 2018 is 10%) compared with 16.1% as at the end of December 2017.