Climbing interest rates on bank loans are the result of Ukraine’s poor economic situation, according to Roman Lysyuk, an international sales expert with Sokrat Investment Group.

“The rates have been rising recently both on old and new mortgage loans, as well as on cash advances for credit card owners. This is a result of the worsening economic situation in the country, mounting inflation, and the National Bank’s decision to increase its discount rate to 12 percent. Interest rates have increased between 1.2 percent and 8 percent. Consumer loans and cash advances have seen the steepest hikes, because these credits are unsecured.”

“Between January and April 2008, the incomes of the Ukrainians were 47 percent above the same period of 2007. This spurred growth in consumer lending. But after April, a decline set in. Ukrainians use over 80 percent of their income for goods and services, leaving a minimum amount for savings and loan repayment.”

“S&P’s downgrade of Ukraine’s foreign currency sovereign rating from BB- to B+ is yet another negative factor. S&P’s report says that Ukraine’s financial sector has the worst quality credit portfolio among the developing countries of CIS and Europe. Potentially problematic loans make up as much as 75 percent of Ukrainian banks’ portfolio.”

“Ukrsotsbank has become one of the first to suffer from the bad trend on Ukraine’s banking market. On June 20, S&P lowered its rating from BB- to B+, which will make foreign loans more expensive for the bank. More banks are likely to be downgraded soon.”