Ukrainian Banks Earned $2.5 Billion in Net Profit Last Year After Paying 50% Taxes

Ukrainian banks earned Hr.103.7 billion ($2.5 billion) in net profit in 2024 and paid Hr. 83.7 billion ($2 billion) in taxes at an increased 50% rate, the National Bank of Ukraine (NBU) reported.

The main drivers of growth were the expansion of loan portfolios and investments in government bonds, the NBU report says.

The hryvnia loan portfolio for businesses increased by 21%, while household loans grew by nearly 40%. Banks invested 35% more in government bonds, and it became an additional source of income.

In the first half of 2024, market deposit rates fell, allowing banks to maintain a high net interest margin.

Net fee and commission income grew by 11.3% in December 2024, reaching the same level before the full-scale invasion for the first time in three years.

Nine small Ukrainian banks out of 61 operating were unprofitable, with total losses amounting to Hr.418 million ($10 million). The NBU attributed this to inefficient business models and longstanding issues.

According to NBU data, the return on equity (ROE) of the banking sector in 2024 was around 30%.

Ukrainian banks pay 50% profit tax for the second year in a row

Banks had to pay Hr. 83.7 billion ($2 billion) in profit tax due to the continued 50% rate, which was extended for the second consecutive year. Final figures will be available after the annual audit, the NBU said.

In 2023, Ukraine’s parliament first introduced this rate as a temporary measure to mobilize budget revenues after Russia’s full-scale invasion, given that defense spending constitutes the largest share of the state budget.

Other Topics of Interest

Russiaʼs War Caused $170B in Infrastructure Damage to Ukraine

The housing and transportation sectors of Ukraine’s economy were hit hardest by Russia’s full-scale actions, a new report says.

The International Monetary Fund (IMF) recommended against imposing a 50% windfall tax on the banks in 2024, Kyiv Post previously wrote. However, Ukraine imposed a similar tax at the end of 2024.

Imposing a 50% tax on bank profits for a second consecutive year contradicts the nature and intent of windfall taxes, undermines trust in policy, and is not an effective financial solution, Trevor Lessard, deputy head of the IMF mission in Ukraine told Interfax-Ukraine.

He added that banks may adjust their profit policies to face a possible tax increase: “For them, it’s very rational to prepare for a third time, as there’s a possibility it will happen again,” Lessard said.

Instead of unexpected tax hikes, Lessard suggested sticking to policies that raise taxes long-term, in an “effective way that yields dividends in the medium term, as opposed to a one-time tax increase that leaves a revenue gap again the following year.”

The biggest state-owned banks in Ukraine are already reporting increased taxes, adding extra cash to Ukraine’s state budget.

Ukraine’s largest state-owned bank, PrivatBank, which has 43% of the total profits of the country’s banking system, reported Hr.80 billion ($1.9 billion) in sales and Hr.40.1 ($955.7 million) in net profits in 2024, Kyiv Post previously reported.

An extra Hr.32.1 billion ($765 million) will be paid in dividends to the state.

Another major state-owned bank, Oschadbank, reported profit of Hr.18.7 billion ($452.8 million) in 2024, nearly doubling the 2023 profit ($225.2 million).

The bank is set to pay Hr.12.2 billion ($295.4 million) to the state budget as profit tax ($239.8 million) and dividends ($55.7 million), which is $140.4 million more than in 2023.

However, retrospective taxation could impact certain banks. Such tax policy could breach capital requirements from the central bank aimed at ensuring banks have enough money to cover losses in case of a crisis, the NBU press release says.

NBU also raised concerns that the windfall tax on the banks jeopardizes profitability of the system.

“Uncertainty in tax policy remains a risk for the banking sector, limiting its growth prospects”, the NBU wrote.