The heads of insurers and banks named the biggest risks for the financial and insurance sector of Ukraine
Managers of insurance companies, banks and non-bank financial institutions have improved their own assessments of the financial sector’s resilience to significant negative events for two years in a row. This is evidenced by the results of the May 2024 Survey on Systemic Risks of the Financial Sector.
In May 2024, about 45% of top managers of financial institutions rated the current state of the sector as good or very good. The balance of responses remains positive (+21%), although it has decreased by 5%. p. from the last survey in November 2023.
The majority of respondents reported that, in their opinion, the state of the financial sector has not changed over the past six months. Every tenth survey participant stated that the state of the financial sector has deteriorated, although there were no such conditions six months ago.
Two-thirds of the heads of financial institutions expect that the state of the financial sector will not change in the next six months. The shares of respondents expecting deterioration or improvement in his condition in the next six months were the same.
Assessments by financial institutions of the general level of risk in the financial sector continued to improve. More than half of the surveyed heads of financial institutions define the level of risk in the sector as a whole as average. The share of respondents who considered its level to be high or very high decreased from 50% to 41%.
For the fourth survey in a row (two years), respondents improved their own assessments of the financial sector’s resilience to significant negative events.
Current assessment of the financial sector of Ukraine
Assessment of changes in the state of the financial sector of Ukraine over the past six months
About 95% of respondents assessed the stability of the financial sector as average or higher. For the second half-year in a row, the total balance of responses is at the highest level since the survey was introduced in 2018.
According to the heads of financial institutions, the war with Russia continues to be the main source of risks in the financial sector.
At the same time, risks related to the inflow of foreign capital (up two positions compared to November 2023), the activities of law enforcement agencies and the judicial system, as well as fraud and cyber threats made it to the top five.
Assessment of the resilience of the financial sector of Ukraine to significant negative events
The risk of the quality of human capital in the financial sector has significantly increased in the past six months and is currently among the top five threats. The risks of protecting the rights of creditors and investors have also increased significantly (increased by three positions). Instead, according to the respondents, the role of risks related to the dynamics of world prices for raw materials, the quality of legislation and the tax system, and inflationary changes has weakened.
The propensity of financial institutions to risk has increased again in the last six months. In 16% of respondents, their risk appetite has decreased over the past six months. On the other hand, the majority of respondents stated that their risk appetite remained unchanged.
The share of respondents who considered the level of risk in the insurance and financial sector to be high or very high decreased from 50% to 41%. In general, more than half of the respondents define the level of risk as average.
About 45% of top managers of financial institutions rated the current state of the financial sector as good or very good. Two-thirds of respondents do not expect it to worsen in the next six months.
The biggest risks for the financial and insurance sector of Ukraine
Ranks of risk factors (by the total share of “very high” and “high” responses)
- War with Russia
- Dynamics of inflow of foreign capital (including direct investments) to Ukraine
- Activities of law enforcement agencies and the judicial system
- Fraud and cyber threats
- Quality of human capital in the financial sector
- The general level of corruption in the country
- State of protection of the rights of creditors and investors
- Political and social situation in Ukraine
- Quality of legislation and tax system
- Level of economic activity
- Value of assets and quality of collateral
- Competition in the market of financial services
- Exchange rate dynamics and volatility
- State economic policy (monetary, fiscal, etc.)
- Access to funding
- Status of cooperation with international financial organizations
- Dynamics of world prices for raw materials
- The level and dynamics of real estate prices
- Current and expected inflation
- The possibility of bankruptcy and/or significant financial difficulties of financial institutions
- Virtual assets
- Climatic changes
The main source of risks in the financial sector continues to be the war with Russia. Risks related to the dynamics of foreign capital inflows, the activities of law enforcement agencies and the judicial system, fraud and cyber threats also made it to the top five, as well as, for the first time in the history of surveys, the risk of the quality of human capital in the financial sector, which has increased significantly.
Fin inclination became a risk in the last six months again slightly increased – the results of the survey show.
Methodology
The survey on systemic risks of the financial sector examines the perception of the largest insurers, banks and non-bank financial institutions of current and potential risks for the financial sector and is conducted by the National Bank of Ukraine twice a year. Its results reflect the assessment by top managers of financial institutions of the state of the financial sector for the past 6 months and expectations for the next six months.
The survey was conducted from May 7 to 21, 2024, with the participation of managers of 22 banks, 10 insurers and two investment companies. The sample did not include financial institutions to which special economic and other restrictive measures (sanctions) were applied. The final results were not weighted by the size of the bank / company or their market share – all answers are equal.
The presented results are based on the answers received from the respondents and may not coincide with the assessment of the risks of the financial system by the National Bank of Ukraine.