Forex, liquidity risks on the rise, capital risk declines in Ukraine - NBU

MOSCOW. Dec 23 (Interfax) - Estimates of the forex risk and the liquidity risk in Ukraine have reached 5 and 3, respectively, on a 0-10 scale, as the exchange rate expectations have worsened and the influx of customers' money to banks has slowed, Ukrainian media said, citing the National Bank of Ukraine's (NBU) Financial Stability Report.

"There is a medium forex risk. Banks' forex risk estimates and exchange rate expectations of enterprises and the population have worsened compared to what they were in spring. Meanwhile, the volatility of the hryvnia's exchange rate against the dollar remained low. The international reserves are sufficient to smooth out exchange rate fluctuations," the NBU said.

Though the liquidity coverage ratio has declined slightly, it continues to be far above the minimum requirements, and the stock of high-liquidity assets is considerable, it said, adding that banks still expect the liquidity risk to grow in the future.

Meanwhile, the capital risk lowered noticeably from 6 to 4, the NBU.

"Capital adequacy has grown following the transition to a new structure for capital and revenue accounting in tier 1 capital. Banks' capital stock remains significant, and their profitability will help maintain it further," it said.

As regards four other risks, the macroeconomic risk is estimated at 8, the household credit risk at 4, the corporate credit risk at 5, and the yield risk at 1, the same as in June.

Ukraine's economy continues to recover despite problems in the energy sector, the NBU said. The state budget deficit, the current account deficit (excluding grants), as well as public debt and gross external debt remain high, but these risks are minimized by the stable supply of international aid, it said.

As regards the household credit risk, the NBU said that the quality of the retail loan portfolio has been improving, while the share of overdue loans has been shrinking gradually. However, banks expect the quality of this portfolio to decline somewhat, and the population's economic expectations have worsened.

When commenting on the corporate loan risk, the NBU said that the level of defaults in the corporate loan portfolio has declined and currently matches figures recorded during a macroeconomic stability period. Banks, for their part, have said that the quality of this portfolio could worsen.

"The financial standing of companies is satisfactory, with businesses' estimates of the prospects for a business activity rebound remaining cautious," it said.

As for the minimum yield risk, banks have passed through the cycle of rate cuts, maintaining their high interest margin, the NBU said. Due to the sound quality of the loan portfolio, banks' allowance for credit risks is insignificant, while their operating efficiency is expected to stay high.