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Banking

Retail growth focuses Ukraine’s funding needs

Banks have been profiting from a rising tide of consumer borrowing. As increasing bank intermediation offers plenty of loan growth, a mismatch in assets and liabilities puts pressure on banks to come to the international capital markets and make use of more sophisticated funding. Florian Neuhof reports from Kiev.

INDEPENDENCE SQUARE IN Kiev is a site of historical importance. It is where Ukraine’s democracy came of age when demonstrators gathered to protest against the rigged election of 2004 in what became known as the Orange Revolution. These days, Ukrainians have shifted their attention elsewhere. The square is near-deserted at most times, but the shopping mall in a vast cavernous space underneath is buzzing with activity.

This is indicative of the spending frenzy that has gripped consumers, the result of a growing economy and a rise in disposable income. As people have recovered their faith in the banking system since the financial crisis in 1998, they have taken to funding their consumption with bank loans. This trend has been intensified by the recent decline in economic growth, GDP rose by 2.6% in 2006, compared with 12.11% in 2004.

Retail lending is the fastest-growing segment of the market. In a 2006 bank industry analysis, Standard & Poor’s states that household lending growth outpaced that of corporate lending in the past four years, as retail loans grew at an average annual rate of 108%. Retail lending now stands at 8.3% of GDP at year-end 2005, a figure higher than Russia’s 5%.

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