Lending and funding: what do banks expect in the fourth quarter?

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In the fourth quarter of 2022, the National Bank of Ukraine polled the banking sector about the conditions of bank lending and expectations of probable funding. These are interrelated processes, largely dependent on the state of the foreign exchange market and inflation. In this blog, we will analyze what positive trends are expected in the banks and what are the risks to be afraid of.


According to the polling of banking institutions, some renewed interest in corporate loans can be expected in Q4, but the demand for household loans is likely to go down. The level of general economic activity, discouraging inflation expectations and exchange rate fluctuations had a significant impact on creating stricter requirements for lending to all clients. This can be seen in the dynamics of loan approvals, for individuals and businesses it has declined. This trend is expected to continue in the next quarter.


Change in the level of approval of credit applications of the corporate sector. Source: NBU


Change in the level of approval of credit applications by households. Source: NBU

A certain increase in interest in corporate loans is associated with the current needs of companies, for example, to increase working capital and debt restructuring. The demand for short-term hryvnia borrowings is growing, while the demand for long-term foreign currency loans continues to shrink. At the same time, households' interest in loans, including mortgages, continues to decline. This is connected with the worsening consumer sentiment and the price conditions of mortgage loans. A similar trend is forecasted for the next quarter.


The volume of customer funds in financial institutions is growing, as evidenced by a poll conducted by the NBU on bank funding. Companies and individuals have increased investments in banks. In all likelihood, it happened due to the increase of deposit rates for business. It is expected that the attraction of funds to the banking institutions will grow against the background of shrinking maturity of deposits. Despite the growth of the share of liabilities in foreign currencies, it is expected that this is not a trend, but a temporary event. Over the past year, the amount of capital has remained almost unchanged, but almost half of the respondents believe that this will happen in the near future.


Change in the volume of banks' funding. Source: NBU

Change in the cost of banks' funding. Source: NBU

The third quarter of 2022 was marked by an increase in funding. 75% of financial institutions showed an increase in investments from households, and 65% reported an increase in deposits from companies. Fundraising from bonds, loans from international institutions and long-term refinancing is on the decline. The expected trend for Q4 is an increase in funding from households with a decrease in wholesale capital investment. However, they are expected to be larger from both corporations and households.


Therefore, credit standards for businesses and households are expected to strengthen in the next quarter. Banks have already reduced the level of approval of applications, because the risks for banks are growing. The greatest caution is expected by banking institutions regarding interest rate, currency and operational risks, with these trends continuing in the next three months. Capital turnover is declining due to changes in the economy and regulatory requirements. At the same time, losses should hardly be expected to affect banks' capital next year.


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