In 2023, the scale of the losses suffered by the banking system will become clear, as will the need for additional capitalization of some banks
Firstly, 2023 will bring high inflation everywhere in the world, including in Ukraine. I hope the world will be able to avoid stagflation when recession and high inflation go hand in hand for a long time. A recession is expected, with one certain to happen in Europe, and one possible in America. Its depth and duration, however, are still unclear. We hope that central banks and governments will cope, other-wise it will be difficult for Ukraine.
Secondly, we should not expect rapid economic growth in Ukraine. It will most likely be moderate, but it will come. A more favorable external environment is needed to accelerate growth, possibly starting in 2024.
Thirdly, Ukrainian banks have already passed the most difficult time, and 2023 should be easier for them. It was not easy to adapt all operations to wartime conditions – to build a flexible organization that can work without exposing employees and customers to unnecessary risk. But if we talk about the security of operational processes in terms of data centers and clouds, then the leading banks have al-ready worked out these points and will continue to work on this matter.
What will we see in 2023?
The scale of losses incurred by the banking system will become clear, both in terms of physical infra-structure and loan portfolios. The need for additional capitalization of some banks will also become clear. I am sure that the liquidity of the banking system will be maintained and supported without problems, and even if there is a need to recapitalize individual banks in 2023 or 2024, this will not pose a threat to financial stability.
Ukrainian banks have already passed the most difficult time
The banking system must adapt to post-war conditions, to a decrease in the number of customers due to migration abroad, and to a decrease in the income of both individuals and companies, because the war has made us all poorer. These factors will lead to a likely decrease in revenues and will require an adaptation of the operating model for both individual banks and the entire banking system.
There is a large share of state-owned banks right now – more than half of the market, and it will grow. In the medium and long term, this is bad, since the efficiency of state banks throughout the world, not just in Ukraine, is lower compared to private institutions. But in wartime conditions, this high concentration of the banking sector under state ownership is, on the contrary, a stabilizing mechanism, because their task, unlike commercial banks, is not to manage the cost of capital, but to support the economy with a social mission. However, after the end of the war, the share of state-owned banks should be significantly reduced over a five-year period.
In this situation, where millions of Ukrainians have gone abroad, the banking business is more resilient than telecom, for example. Even if Ukrainians abroad remain customers of domestic banks, their profitability is still decreasing. This has an impact on economic development and business development. The client pool and profitability of banks will decrease, since millions of Ukrainian clients are not here, which means they are not spending or earning money here. The return of Ukrainians home will accelerate the pace of economic growth, will contribute to a faster replenishment of the country's foreign exchange reserves, and at the same time indirectly increase the income of both the economy as a whole and the banking system.
Products and services of banks will develop. Banks were able to quickly respond to the change in the situation. For example, as soon as there was a large demand for cash, they offered to receive cash from cards at the store cash registers, or the online sale of currency with simultaneous crediting to a termed deposit – as soon as demand arose, banks immediately went for it.
Therefore, with progress in the digitalization of the banking system, there will be less and less need touse branches for operational services. They will become the place where customers go for advice and customer service. This is the trend for 2023.