S&P: Ukraine banks at higher risk

Standard & Poor's said that the Ukrainian banking system is considered to be riskier than its neighboring countries of Kazakhstan and Russia, mainly due to the uncertain macroeconomic and political environment.

Although the parliamentary elections in March 2006, the earlier dissolution of government and a significant slump in GDP growth in 2005 did not immediately affect the sovereign credit ratings on Ukraine (foreign currency, BB-/stable/B, local currency, BB/stable/B), they contributed to a poor operating environment for banks, S&P said.

"Improved macroeconomic forecast in the medium term, the diversifying economy and positive wealth dynamics will continue to fuel growth in banks intermediation. The determination of the Ukrainian president to fight corruption and improve corporate governance should benefit the banks' creditworthiness going forward," said S&P credit analyst Annette Ess.

The agency added that rapid loan growth, including retail loans and foreign-currency loans, is a major risk, adding that the high growth pace is likely to continue in the medium term, buoyed by retail lending boom and increased access of small and midsize enterprises to bank financing.

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