Year of low rates: Will deposit terms be favorable in 2025, and is it wise to take out a loan?

Throughout 2024, banks were able to provide continuous services to businesses and the population, offering increasing resources to the economy to overcome the consequences of the war. Liquidity, solvency, and operational resilience of the banking system are not a cause for concern, report analysts from the National Bank in the Financial Stability Report. They are confident that the National Bank can ensure stable operation of the currency market and smooth out excessive exchange rate fluctuations. However, they note that the key risk to financial stability remains the war, significantly increasing banks' operational costs and dampening their risk appetite for developing specific lines of business. What risks will banks face throughout 2025, and what factors will influence interest rates on loans and deposits?

Money with Interest: Will Citizens Earn Income from Deposits?

According to the NBU, the total portfolio of household deposits as of December 1, 2024, amounted to UAH 1.19 trillion (or USD 28.6 billion at the NBU exchange rate on 1.12.2024). Over the year, the portfolio of household deposits in banks grew by 9.7%.

In 2024, interest rates on deposits for individuals decreased, while citizens increasingly opted for longer-term deposits — 6 or 12 months, driven by higher rates for such deposits. "Throughout the year, the yield on hryvnia deposits for individuals decreased on average by 4 percentage points. This happened almost synchronously, regardless of the deposit terms. However, the most significant decline in rates occurred in the ultra-short deposit segment — nearly 5-6 percentage points.", said Dmitry Zamotaev, director of the retail business department at Globus Bank.

After the autumn outflow of funds from accounts, there has been an increase in the portfolios of deposits and card funds of citizens in winter.

Throughout 2024, there was notable popularity in "demand deposits," which allowed citizens to withdraw funds at any time. Such deposits are always popular during times of great uncertainty, so it is not surprising that a large portion of bank clients decided to keep their funds in accounts with withdrawal options. Banks also report a gradual increase in the popularity of medium- and long-term deposits. However, the most popular remain three-month deposits. This refers to hryvnia; foreign currency deposits are not very popular, and rates for such deposits often hover around 0.01% per annum.

In 2025, experts expect deposit rates to depend on the NBU's discount rate and the rate on 3-month deposit certificates. "Now, following the December adjustment of these two indicators, no significant changes in 'base' yields are expected, unless citizens decide to take advantage of numerous bonus programs and promotions that allow for deposits with additional yield (on average, this will be 1-1.5 percentage points). Forecasts suggest that in January, the regulator may adjust the discount rate (corresponding changes may also occur in the rate of 3-month deposit certificates). The level of adjustment will directly affect banks' plans for deposit development and the yields they offer," Dmitry Zamotaev stated.

Deposit rates are unlikely to rise in 2025; experts suggest they may decrease.

According to Dmitry Zamotaev, in the first quarter of 2025, average rates on hryvnia deposits will be as follows:

• ultra-short deposits with terms from 3 months to 6 months — 9.5% per annum;
• deposits for terms from 9 months to 1 year — 11% per annum;
• deposits from 1 year to 2.5 years — 13% per annum.

"Attracting new clients will be achieved not only through more favorable rates but also through additional benefits, such as loyal early termination conditions, increased percentages on card balances, or additional bonus percentages for placing large sums, and so on. After all, 'incentives' are the best motivator during times of uncertainty, both in the economy and on the front lines. However, the most significant factor influencing citizens' decisions to place funds will be the desire to protect their savings from inflation," noted Dmitry Zamotaev. He also added that the positive trend in the number of new deposits will continue in the first quarter of next year.

Loans in 2025: Will Banks Lower Rates and What Loans Will Be Issued?

According to the NBU, as of December 1, 2024, the portfolio of loans granted to individuals reached UAH 277.8 billion. Over the year, the portfolio increased by 22.6%. The National Bank reports that the net retail loan portfolio is growing rapidly. The volumes of short-term consumer loans (credit card limits, cash loans, installments) are growing the fastest.

Citizens frequently utilize credit card limits, while long-term loans interest few.

"The bulk of the portfolio still consists of unsecured consumer loans, which have increased by about a third over the past year. Mortgages have grown more than twice as fast, thus their share in the portfolio has significantly increased: to 13.5% in October compared to 10.5% a year ago. After a prolonged lull, the auto loan portfolio is also increasing at an accelerating pace. The revival of lending is linked to the stable growth of consumer demand," states the Financial Stability Report.

In banks, it is said that consumer lending is closely linked to safety risk issues. "Most Ukrainians prefer to postpone large purchases. Additionally, market rates do not favor long-term lending. Therefore, for some, a consumer loan is a way to replace broken equipment or upgrade it, make a gift to loved ones, or simply 'get by' until payday. Risks must also be considered. All Ukrainians see how missiles destroy homes and cars. Under such conditions, it is unrealistic to expect stable demand for such expensive purchases," emphasized Alina Kompanets.

According to her, overall interest rates on consumer loans have changed little over the past year. "For credit card limits, rates ranged from 40%-55% per annum. Blank cash loans, depending on the product and the quality of the borrower, were issued at rates ranging from 30%-120% per annum," the expert states.

In 2025, Ukrainians will primarily rely on credit card limits and installments. It is unlikely that the 'єОселя' mortgage will drive the lending market, as only UAH 1.26 billion has been allocated in the state budget for financing new mortgage loans in 2025, meaning long-term loans will continue to play a minor role in the overall lending activity of banks.

As for loan rates, they will be influenced by factors such as the cost of funding (deposit rates), the NBU's discount rate, and the overall inflation rate. "During the last rate review, the NBU articulated that the discount rate will not decrease at least until mid-next year. If the regulator adheres to this strategy, there is no reason to anticipate a likely reduction in loan and deposit rates," stated Alina Kompanets.

Top Risks for Banks in 2025: Are There Real Threats to Financial Institutions' Stability?

The NBU has identified the primary risks for banks. However, according to the National Bank's analysts, the impact of risk factors on the banking sector is moderate.

Macroeconomic Risk. According to the NBU, this risk has not changed. Economic recovery continues despite damage to energy infrastructure. The state budget deficit, current account balance deficit (excluding grants), and state and gross external debt remain at high levels. Stable inflows of international aid mitigate these risks.

Household Credit Risk. The NBU indicates that household credit risk is moderate, with its level determined by a variety of opposing trends. "The quality of the retail portfolio is improving, and the share of overdue loans is gradually decreasing. At the same time, banks expect a certain deterioration in portfolio quality, as economic expectations among the population have worsened," states the Financial Stability Report.

Corporate Credit Risk. The level of defaults in the corporate credit portfolio continues to decline and is now comparable to indicators during periods of macroeconomic stability, according to National Bank analysts. Their data shows that the financial condition of companies remains satisfactory; however, businesses are cautiously assessing the prospects for a revival in economic activity.

Capital Risk. This risk has significantly decreased. The NBU believes that the capital reserves of banks remain substantial, and their profitability will allow them to maintain it in the future.

Yield Risk. According to the National Bank, the yield risks for banks remain minimal. Banks have gone through a cycle of rate reduction and have maintained a high interest margin. Due to the good quality of