In 2024, Ukrainian banks saw a significant increase in profits, totaling Hr.103.7 billion ($2.5 billion), according to a report by the National Bank of Ukraine (NBU). Despite this growth, the banks were required to pay Hr. 83.7 billion ($2 billion) in taxes at a heightened rate of 50%. The surge in profits was primarily driven by the expansion of loan portfolios and investments in government bonds, as outlined in the NBU report.
Driving Forces Behind Profit Growth
The boost in profits was fueled by a 21% increase in hryvnia loan portfolios for businesses and a nearly 40% growth in household loans. Additionally, banks ramped up their investments in government bonds by 35%, serving as an additional revenue stream. Market deposit rates saw a decline in the first half of 2024, enabling banks to uphold a high net interest margin. Notably, net fee and commission income spiked by 11.3% in December 2024, finally reaching pre-invasion levels after three years.
Challenges Faced by Ukrainian Banks
Despite the overall positive performance, nine out of 61 small Ukrainian banks operated at a loss, accumulating total losses of Hr.418 million ($10 million). The NBU attributed this to inefficient business models and longstanding issues within the sector. The return on equity (ROE) for the banking sector in 2024 hovered around 30%.
The prolonged 50% profit tax rate imposed on Ukrainian banks for the second consecutive year resulted in a hefty tax bill of Hr. 83.7 billion ($2 billion). This rate extension was initially introduced in 2023 to bolster budget revenues after Russia’s full-scale invasion, with defense spending dominating the state budget.
The International Monetary Fund (IMF) expressed reservations about implementing a 50% windfall tax on banks in 2024, emphasizing the need for sustainable tax policies that yield long-term benefits. Trevor Lessard, deputy head of the IMF mission in Ukraine, highlighted the adverse effects of recurrent tax hikes on bank profitability and policy trust. He urged for a strategic approach to taxation that ensures fiscal stability without recurring revenue shortfalls.
State-owned banks like PrivatBank and Oschadbank reported substantial profits in 2024, with PrivatBank contributing Hr.80 billion ($1.9 billion) in sales and Hr.40.1 billion ($955.7 million) in net profits. Similarly, Oschadbank nearly doubled its profit from 2023, reaching Hr.18.7 billion ($452.8 million) in 2024. These banks are set to channel significant dividends and profit taxes back into Ukraine’s state budget, bolstering financial resources.
While state-owned banks flourished, concerns were raised about potential impacts on smaller banks due to retrospective taxation policies. The NBU voiced apprehensions about the sustainability of the banking sector amidst uncertain tax policies, emphasizing the need for a conducive environment to foster growth and profitability.
Kateryna Mykhailova, a Journalism student at the Taras Shevchenko National University of Kyiv, has been diligently covering finance, economy, and political economy for Kyiv Post. Her insightful analyses shed light on the intricate dynamics of Ukraine’s banking landscape, offering invaluable perspectives on the sector’s challenges and triumphs.
