...Crisis-Hit Banking Sector; Economy and Currency Stability Key For Recovery Credit Growth Constrained: Political turbulence and economic shocks were severe constraints on credit growth in 2014-1H15. State-owned banks (25% of sector assets) are the main (but only moderate) providers of new finance, but to strategic sectors only. The privately- owned segment (41%) is shrinking due to insolvent banks being liquidated, while risk aversion and exit strategies are prevailing among foreign-owned institutions. Problem Loan Burden: Problem loans (both non-performing and restructured) are large and increasing due to the recession, the unresolved military conflict in the east and the UAH- devaluation. The sector was loss-making in 2014-1H15, mostly driven by high provisioning requirements. Domestic Sovereign Debt Exposure: Sovereign debt (all domestic, in FX and UAH) dominates securities investments, while the bulk (end-1Q15: 75%) is held by the two largest state-owned banks. Domestic debt is not part...
