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The nonperforming loans (NPL) ratio in Ukraine’s banking sector rose by 0.7 percent to 38.8 percent since the start of the year, the central bank said in a statement on Tuesday.

The NPL volume in Q1 2023 rose by UAH 2 billion, to UAH 434 billion, the National Bank of Ukraine added.

Banks continue to recognise loan losses, their amount exceeding UAH 107 billion since the start of Russia’s full-scale invasion of Ukraine.

It accounted for more than 13 percent of the loan portfolio the banks had at the end of February 2022, the NBU’s statement read.

Danylo Hetmantsev, the chairman of the parliamentary financial committee, noted that the banks had been reluctant in recognising NPLs this year.

"We can expect that banks will receive an additional impetus to recognise NPLs based on the results of the diagnostics recently launched by the NBU to assess the quality of assets and capital of the largest banks," he posted on Telegram.

According to Mr Hetmantsev, banks have the ability to recognise non-performing loans due to the continued high profitability, which allows them to make allocations to provisions.

The banking system is adequately capitalised, he stressed, with a regulatory capital adequacy ratio of 20.8 percent as of 1 April – the norm being no less than 10 percent – which is higher than before the war.

"After the war, clearing NPLs from banks' balance sheets and significantly increasing lending to the economy will be one of the key tasks for the financial bloc of the government," Mr Hetmantsev said.