Recovery and strengthening of the banking system
The main goal of the banking system is to increase the volume of lending to the real sector of the economy, the security and financial stability of Ukraine's banking system, raising the level and quality of bank capital, as well as protecting the interests of depositors and creditors.The executive authorities' policy in the field of banking activity was aimed at restoring and strengthening the city's banking system, as well as enhancing its role in economic transformation processes.
There are 14 commercial bank institutions operating in the city (2 legal entities and 12 branches). The city has 2 banks - legal entities - CB "Zakhidinkombank" and a bank established with 100% Polish capital - Pekao Bank (Ukraine) LTD, and 2 bank institutions that are in the process of liquidation - the Volyn Directorate of Bank "Ukraine" and the Lutsk branch of JSC "Gradobank".
There is 1 balance-sheet banking institution per 48 thousand people in the region, and together with non-balance-sheet institutions - 1 institution per 3.7 thousand people.
The development trends of the banking sector that took place during 2001-2003 were characterized by:
- growth in lending volumes and attraction of household deposits;
- growth in long-term lending volumes, including to households;
- a decrease in overdue and doubtful loan debt;
- growth in per capita lending in the region and in funds attracted by banks from business entities and individuals;
- improvement of the financial result;
- growth in net interest and commission income;
- a decrease in the level of expenses per 1 hryvnia of income and an increase in asset profitability;
- a decrease in interest rates on resources.
The dynamics show stable growth in the volume of banks' operations. Thus, the total assets of banks increased 1.8 times compared with 01.01.2001, including earning assets by 1.9 times. The source of their growth was mainly funds attracted from bank clients, which increased 2.8 times.
It was precisely the growth of public confidence in the banking system that allowed banks to make long-term investments, which is expressed in a stable increase in the volume of citizens' deposits entrusted to banks for terms of more than 1 year.
86% of the increase in attracted client funds is the increase in citizens' funds. These are mainly citizens' time deposits. Thus, compared with 01.01.2001, long-term deposits increased 7.7 times, and household short-term deposits by 1.3 times.
Overall, the volume of client funds attracted by banks increased from 175.6 UAH per capita to 486.3 UAH over the period from 01.01.2001 to 01.10.2003; this is 16th place compared with other regions of Ukraine.
The total loan portfolio of banks increased 2.3 times over the period since 01.01.2001, with long-term loans growing 8.2 times. The structure of the loan portfolio improved towards an increase in the share of long-term loans. The share of overdue loans, on the contrary, decreased from 5.6% to 3.1%.
Banking operations are conducted mainly in the national currency: in lending, their share increased from 53% to 62% of all loans granted; in household deposits, from 55% to 58%.
The volume of loan debt of small business enterprises as of 01.10.2003 amounted to 22.8% of the total credit portfolio.
The NBU's policy, in accordance with the economic situation in Ukraine, is constantly aimed at creating conditions for investing credit funds in the state's economy, as well as at reducing their cost.
The dynamics of interest rates fully corresponds to national trends. By the level of rates on deposits (time and demand), Volyn ranks 5th; by rates on time deposits, 7th; and by the cost of loans, 9th among the banking systems of Ukraine's regions.
Dynamics of interest rates according to NBU data, %
| In September | In September | Deviation | In September | Deviation | |
| Loans | 33,0 | 24,7 | -8,3 | 17,0 | -7,7 |
| Legal entities | 33,1 | 28,1 | -5,0 | 16,8 | -11,3 |
| Individuals | 26,4 | 24,8 | -1,6 | 19,2 | -5,6 |
| Time deposits | 12,3 | 11,8 | -0,5 | 8,4 | -3,4 |
| Legal entities | 4,9 | 8,5 | +3,6 | 5,1 | -3,4 |
| Individuals | 19,1 | 12,7 | -6,4 | 11,8 | -0,9 |
The dynamics of banks' financial results is also positive. The financial result for 9 months of 2003 already exceeded the result of the previous year, 2002, by 1.3 times and the result of 2000 by 6.5 times.
This was facilitated by the growth of net interest income from the main banking activity - providing funds on credit. Commission income of banks from providing services to clients also increased somewhat. As for expenses, the growth of administrative, business and other expenses was insignificant, and banks formed insurance reserves in the current year less intensively than in previous years. Thus, the growth of net interest income almost fully ensured the corresponding growth of the aggregate profit of the region's banks during the analyzed period. Therefore, the main factor in increasing the profitability of banks' assets is the activation of their lending activity. Overall, the predominant growth of income over the growth of expenses in line with the increase in the volume of banking operations ensured a reduction in the level of expenses per 1 hryvnia of income from UAH 0.96 in 2000 to UAH 0.82 for 9 months of 2003 and an increase in asset profitability from 0.8% to 1.9%.
The tasks set before the banking system by the National Bank of Ukraine and whose fulfillment is facilitated by its monetary policy - ensuring expansion of bank lending to economic sectors, reducing the cost of loans, active cooperation with the population in attracting deposits from citizens - are being fulfilled by banks in accordance with existing trends in performance indicators.
Problems of functioning of the banking system:
- insufficient level of capitalization of banks;
- absence of a legal framework guaranteeing reliable protection of the interests of creditor banks;
- absence of a unified, legally established system of managerial and financial standards for the activities of credit unions;
- weak use of the financial mechanism of credit unions for the introduction of state microcredit programs.
Main objectives for the development of the banking sector in 2004:
- creating favorable conditions for enhancing the role of banks in the financial market and in economic development;
- strengthening the resource base and increasing the liquidity of banks;
- strengthening the reliability and efficiency of banks.
The main measures for achieving the defined goals are:
- increasing the capital of the banking system;
- increasing the volume of loans provided by the banking system to business entities;
- increase the capitalization of banks by attracting additional equity capital, capitalizing their profits and reorganizing; pooling bank capital for joint projects;
- increase the profitability of banking operations and reduce costs through the introduction of advanced banking technologies;
- improve auditing in accordance with international standards;
- ensure confidence in banks by creating an effective system of bank deposit insurance;
- improve the system of cashless payments for the population, in particular payment cards;
- improve banking management;
- improve the risk management system in commercial banks;
- improve the quality of the loan portfolio of commercial banks.