According to the report, over the 12-18 month outlook period, the operating environment for Ukrainian banks will remain negative with the economy expected to show very little growth — after meagre GDP growth of 0.2% in 2012 — largely because of weak external demand for Ukraine's key export commodities, in particular steel.
Moody's says that within this context, Ukrainian banks' asset quality will remain very weak over the outlook horizon. Problem loans will remain at the 2012 level of around 35% of gross loans in 2013, driven primarily by weak export prices and stagnant real-estate prices. Furthermore, loan-loss provisions covered only around 40% of total problem loans (including restructured) at year-end 2012, which Moody's believes is insufficient to cover potential credit losses. The banks will be marginally profitable in 2013 as their earnings will be affected by increased loan loss provisioning, shrinking margins and limited cost-cutting ability. Net interest margins declined to 4.5% in 2012 from 5.3% in 2011, and we expect the negative trend to persist in 2013.
READ ALSO: A Competition of Profitability
