Financial Stress Index in Ukraine Lowest Since February 2022

The liquidity, solvency, and operational resilience of the banking system do not raise any concerns, Ukraine’s central bank, the National Bank of Ukraine (NBU) wrote in its Financial Stability Report.

The Index of Financial Stress, created by the central bank, indicated that the sentiment was calmer in the second half of 2024. The main reason for this is the decreased interest rates on Ukrainian bonds and Eurobonds after successful debt restructuring.

War remains the key risk to the financial stability of the country, Director of the Financial Stability Department, Pervin Dadashova, said during the briefing where the report was presented.

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Ukraine also felt more secure for 2025, as the G7 Extraordinary Revenue Acceleration (ERA) Loan to Ukraine will fund its budget during 2025. The National Bank observes that inflation is higher than its forecasted estimates but ensures it is temporary.

“Inflation has accelerated now, but inflationary pressures will ease in the middle of next year after the new harvest arrives on the market,” Dadashova said.

The central bank believes steady domestic and external demand will contribute to GDP growth in 2025.

“Domestic demand is not overheated now. It decreased in 2022-2023 and recovered in 2024, but its level is still not as high as during pre-war times. “The level of demand growth has not been exhausted,” First Deputy Governor of the NBU Kateryna Rozhkova replied, answering the question from Kyiv Post reporter.

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After a short period of seasonal volatility, corporate and retail deposits at the banks returned to growth. The net hryvnia corporate loan portfolio also increased by more than 20% over the year (as of November 2024, since November 2023), while the retail loan portfolio grew by over 30%, according to the press release.

Enterprises indicate expected production growth, but business investment sentiment remains suppressed.

The role of concessional loans is also decreasing, but this is a positive sign that more and more Ukrainian companies recovered enough to pay market interest rates for loans. “Many program participants could obtain and service loans under market conditions, highlighting the need to focus the program on clients who require support,” Dadashova said.