Banking risk monthly outlook: April 2025

Tightening of the loan-to-deposit ratio in India will likely drive banks to pursue wholesale funding. Owing to expected accelerating credit growth in India, and relatively slower deposit growth due to the presence of financial market investment as an alternative to deposits, the loan-to-deposit ratio in India is expected to increase in the next several years. The inclusion of India’s government bonds into global bond indices will make it easier for banks to seek funding from wholesale markets, and lowers the proportion of the banking sector’s liabilities from deposits as a result. Whilst this improves banks’ sources of funding, the cost of India bonds dictate that it will likely be more costly for banks for funding this way and potentially impact on banks’ profitability.

Ukrainian bank privatization is unlikely in 2025, with additional bank capital needs to be identified in April. The Ukrainian state is a majority shareholder in banks holding 53.3% of sector assets as of end-2024 and has previously sought to reduce its stake to 25% of assets by 2025. In view of the ongoing conflict, asset quality concerns and the extended higher corporate tax rate of 50% into 2025, the earmarked privatization of two of the smaller state-owned banks (Ukrgasbank and Sense Bank) is unlikely through 2025 according to the First Deputy of the National Bank of Ukraine. Moreover, the central bank noted that potential recapitalization needs for the two lenders — after the retroactive extension of the higher corporate tax rate to 2024 and during capital building under the Bank Resilience Assessment (2023-2026) — would become apparent over the coming month. 

Croatia’s central bank's new macroprudential measures have been rescheduled for July. The Croatian National Bank, the country’s central bank, announced that the preventative new macroprudential measures, intended to mitigate credit risk accumulation in the household loan segment by slowing borrowing, will now come into force from July 1, 2025, later than expected. The confirmed date reflects findings from public consultations to allow for the completion of agreements before new measures apply and to grant banks time to adjust internal systems “to implement and oversee the application of measures.” The introduction of explicit borrower-based measures was anticipated given the strong growth of household loans. The pace of household loan growth since 2022 remained elevated compared to the preceding decade, lifted by strong non-purpose cash loan growth.

Colombian banks reducing interest rates on mortgages will increase credit to households. Colombian banks have been competing to lower interest rates on mortgages over the past year. The most recent movement stemmed from the largest lender, Bancolombia, lowering its rates to 9% in mid-March. This competition is likely responding to the incentives posed by the executive to increase housing accessibility, rather than low credit demand to this segment of banks’ portfolios. As a result, we expect that it will increase its proportion in the total portfolio of the sector over the course of the year.

Expected mortgage law in Kuwait will fuel credit growth. The long-awaited mortgage law is in the last stage of discussions and is expected to be passed by the Council of Ministers soon. Kuwaiti banks currently do not underwrite mortgage lending for domestic residential homes, only purchased plots, and borrowers can only finance mortgages with the state-owned Kuwait Credit Bank with a long backlog. Saudi Arabia passed a mortgage law in 2012, and lending for housing has increased by 628 billion Saudi riyals (US$168 billion) from 2012 to 2024. In comparison, the Kuwaiti banking sector’s lending for housing only stood at 16.8 billion Kuwaiti dinars (US$41.4 billion), indicating large headroom for growth potential. Given the current backlog in housing requests, Market Intelligence estimates that Kuwaiti banks could potentially unlock 7.2 billion Kuwaiti dinars when mortgage products in commercial banks become available.

Potential tighter fiscal conditions as part of the IMF program will likely lead to lower credit growth to Kenya's economy and drive asset quality deterioration. Kenyan authorities and IMF staff have agreed to halt the ninth review of the US$3.6 billion Extended Fund Facility (EFF) and Extended Credit Facility (ECF) programs. Initiated in April 2021, the EFF and ECF programs with Kenya were scheduled to expire next month. Kenya has requested a new program that may incorporate US$800 million of unused funds from the current program. We anticipate that the new program will impose stricter fiscal conditions, leading to tighter monetary policies and higher interest rates. This is consequently expected to increase borrowing costs for banks and customers, to exert pressure on borrower repayments, and to elevate the risk of loan defaults. Additionally, it may curtail credit growth.