Fearing tax increases, inflation, and hryvnia devaluation: Ukrainian businesses are withdrawing their money from deposits

Ukrainian businesses have begun actively withdrawing money from their deposit accounts and increasingly taking out loans.

This is according to a recent report from the National Bank of Ukraine (NBU).

The report states that in September, the total amount of corporate deposits decreased by 18.7 billion UAH (€415.9 million), or 1.4%, to 1.35 trillion UAH (€30 billion):

• Hryvnia deposits fell by 9.1 billion UAH (1%) to 929.2 billion UAH.
• Foreign currency deposits dropped by $226 million (2.2%) to $10.2 billion.

As businesses withdraw their own funds, they are also ramping up borrowing. In August of this year, the total volume of corporate bank lending increased by 8.1 billion UAH (1%), and in September it grew by 10.8 billion UAH (1.3%), reaching 822.3 billion UAH. Notably, the NBU reported a rise in hryvnia business loans by 11.5 billion UAH (2%) to 575.9 billion UAH, while foreign currency loans decreased by $13 million (0.2%) to $5.99 billion.

“No one needs extra debt in dollars, which, according to the 2025 state budget, is expected to rise to 45 UAH per dollar. It’s more profitable to borrow in hryvnia, which is devaluing and shrinking amid rising inflation. For the same reasons, company financial directors no longer want to accumulate hryvnia in deposit accounts, where the interest rate has dropped from 13-14% annually (as it was at the beginning of 2024) to just 10%, while official inflation is at 8.6%,” explained a representative from a major bank.

Experts have identified eight reasons for the decline in hryvnia savings and the increase in hryvnia borrowing by Ukrainian companies:

1. The reduction of the NBU’s key interest rate from 25% in 2023 to 13% currently, which has led to lower deposit rates.
2. Rising official inflation, which increased from 7.5% to 8.6% year-on-year in September. This drives up the cost of many goods and services in hryvnia, prompting businesses to stockpile goods and raw materials despite the ongoing war.
3. The devaluation of the hryvnia from 36.6 UAH/USD in September 2023 to 41.2 UAH/USD currently, leading to higher prices for imported goods and services, with many companies making advance payments at current exchange rates.
4. Higher taxes, including excise taxes, which have also driven up the cost of various goods and raw materials, including petroleum products that businesses are stockpiling.
5. Dividend payments to business owners within the country.
6. Increased purchases of various energy equipment in anticipation of potential future blackouts.
7. Increased agricultural activities in the autumn.
8. More active payments in the defense sector, where debts accumulated over the summer.

Given all these factors, keeping money in accounts, as was common in the first half of 2024, will soon become less profitable for companies than investing in raw materials, goods, and advance payments for imports.

As for individual deposits, there has been growth. According to the NBU report, the deposit portfolio of individuals in hryvnia increased by 17.8 billion UAH (2.4%) to 767.5 billion UAH, while foreign currency deposits rose by $129 million (1.3%) to $9.7 billion. Although this trend appears positive, financial experts note that much of the inflow of hryvnia is going into current accounts (which can be accessed at any time) rather than fixed-term deposits.

“People continue to convert their maturing hryvnia deposits into dollars. The hryvnia inflow mainly comes from payroll cards, with a significant portion being payments for military personnel. Long-term investments are being made in foreign currency. According to the NBU, over the first nine months of 2024, hryvnia deposits by individuals grew by only 7.9%, while foreign currency deposits increased by 9.3%. Meanwhile, banks are offering minimal interest rates on dollar and euro deposits (0.6-1% annually),” noted a representative from a major bank.