Ukrainian banks reported an aggregated net profit of UAH 39bn ($0.98bn) in 2Q24, down 2.4% q-o-q, bringing 1H24 net income to UAH 79bn ($2.0bn), up 17% y-o-y. The capital adequacy ratio (CAR), per NBU methodology, stood at 19.1% as of end-June, down 1.4pp q-o-q and -2.0pp YTD.

Ukrainian banks’ gross UAH loans increased by 1.6% m-o-m in July, following a 2.6% rise in June, reaching UAH 803bn, bringing y-o-y growth to 15.6%. Meanwhile, F/X loans grew by 1.7% m-o-m but declined by 6.0% y-o-y to $6.3bn. Hryvnia-denominated deposits increased by 0.4% m-o-m to UAH 1,708bn in July, after a 1.7% rise in June (+20% y-o-y). F/X deposits decreased by 0.6% m-o-m to $19.8bn (+4.9% y-o-y), after a 0.7% increase m-o-m in June.

Ukraine’s merchandise trade deficit stood at $2.9bn in July, flat m-o-m as exports rose by 11% m-o-m to $3.1bn (+28% y-o-y), while imports increased by 5.4% m-o-m to $5.9bn (+14% y-o-y).

Fitch downgraded Ukraine’s long-term foreign currency issuer rating to RD from C following the expiration of the 10-day grace period for Ukraine’s 2026 Eurobond coupon payment due Aug. 1 and the launch of a consent solicitation to exchange $20.4bn of sovereign and sovereign-guaranteed Eurobonds on Aug. 9. The agency considers this to be a distressed debt exchange (DDE). Fitch stated that it will upgrade the rating following the completion of the restructuring process, with the new rating level depending on forward-looking debt service payment prospects.

Ukraine’s iron ore exports fell by 10% m-o-m to 2.5 Mt in July (still +84% y-o-y), bringing the 7M24 volume to 20.8 Mt (+115% y-o-y). In value terms, iron ore exports dipped by 2.6% m-o-m to $229m last month (+63% y-o-y), totaling $1.8bn in 7M24 (+77% y-o-y).

According to the latest monthly survey conducted by the Ukrainian Institute for Economic Research (IER), the percentage of manufacturing enterprises operating at a capacity load of 75% or more (compared to pre-war levels) slumped to 45% in July, down from 57% in June. The share of idle firms increased to 7%, up from 4% in June. The share of enterprises with 50-74% capacity loads rose by 8pp m-o-m to 33%, while the remaining segment (25-49% utilization) increased by 2pp to 16%.

Ukraine received a EUR 4.2bn tranche from the EU, marking the first condition-based regular payment under the EUR 50bn Ukraine Facility program. This follows the EUR 6.0bn bridge financing and EUR 1.9bn unconditional tranche received earlier this year. The disbursement, which includes EUR 2.7bn in concessional loans and EUR 1.5bn in grant financing, came after Ukraine completed nine reforms and policy indicators outlined in the Ukraine Plan, and brought YTD budget support from the EU to EUR 12bn out of the EUR 16bn expected this year. The remaining EUR 4bn (including a EUR 1.5bn grant) is expected in November, contingent upon meeting the underlying conditions.

Vodafone Ukraine (VFU), Ukraine’s second largest mobile operator, made a scheduled coupon payment of $12.4m on its $400m 2025 notes. VFU confirmed that the payment was made from the company's onshore bank account following recent NBU’s currency control liberalization measure that allowed cross-border payments for servicing the external debt for eligible companies.

Metinvest reported 2Q24 iron ore production of 4.0 Mt, down 17% q-o-q and up 65% y-o-y, bringing 1H24 output to 8.9 Mt, up 40% h-o-h and 87% y-o-y. Crude steel production increased by 22% q-o-q and 5.7% y-o-y to 572 kt, bringing 1H24 output to 1.0 Mt, up 4.9% h-o-h and 0.9% y-o-y. Finished and semi-finished steel production totaled 813 kt in 2Q24, up 8.4% q-o-q and down 0.6% y-o-y, and 1.6 Mt in 1H24, up 5.7% h-o-h and down 4.8% y-o-y. Quarterly coking coal concentrate production fell by 8.0% q-o-q and 37% y-o-y to 1.0 Mt, cutting 1H24 output by 14% h-o-h and 31% y-o-y to 2.1 Mt. Lastly, coke production was little changed q-o-q at 281 kt (-15% y-o-y), falling by 4.7% h-o-h and 13% y-o-y to 564 kt in 1H24.

Crude steel production in Ukraine totaled 4.6 Mt in 7M24, up 34% y-o-y, with finished and semi-finished steel output rising by 29% y-o-y to 3.7 Mt and hot metal production up 21% to 4.1 Mt. The reported 7M24 data imply July crude steel production of 709 kt, down 3.5% m-o-m but up 18% y-o-y. Hot metal production dropped by 1.1% m-o-m to 621 kt, still up 16% y-o-y, while finished and semi-finished steel output recovered by 3.0% m-o-m to 589 kt (+12% y-o-y). Daily production averaged 22.9 kt in July, down 6.6% m-o-m but up 18% y-o-y.

Key highlights from last week: Ukrainian operation in Russia’s Kursk region spreads to est. 1,000 km2 after first cross-border incursion was reported on Aug. 6 Russian assaults inside Ukraine slow, yet gains continue

Ukraine’s headline CPI was flat m-o-m in July (vs. +2.2% in June), pushing the y-o-y tally up to 5.4% from 4.8% in June. Core inflation, an indicator adjusted for administratively regulated tariffs and prices of raw foods and energy, increased by 0.7% m-o-m following +0.5% m-o-m in June, driving the y-o-y indicator to 5.7% from 5.0% in June.

The Ukrainian Finance Ministry has launched an offer to holders of $19.7bn of sovereign Eurobonds and $0.7bn of government-guaranteed bonds issued by the state road service agency Ukravtodor to exchange their notes for new securities. In line with last month’s agreement in principle reached with an ad hoc committee of bondholders, the offer envisages exchanging the existing bonds into new Type A and Type B bonds, implying a 37% nominal haircut (on the amount of exchanged bonds and coupons accumulated during a 2-year standstill), maturity extensions to 2029-36, and coupon cuts to an est. 1.1% on a weighted average basis in 2025, 2.9% in 2026-27, 4.9% in 2028-33, and 6.3% in 2034. The offer will have a contingent component allowing for reducing the nominal haircut to 25% via additional issuance of Type B bonds maturing in 2035-36, depending on Ukraine’s real and nominal GDP dynamics.

State rail monopoly Ukrainian Railways (RAILUA) reported a freight transportation volume of 13.6 Mt in July, down 7.4% m-o-m but up 12% y-o-y. The company said it slipped into losses in July for the first time in 2024 due to increased transportation of loss-making cargoes, higher electricity costs, and non-cash F/X losses.

Fitch Ratings cut its long-term foreign and local currency issuer default ratings on DTEK Renewables to C from CC following the company’s Eurobond restructuring offer. Fitch treated the launch of the restructuring process as a distressed debt exchange, seeing it as a way to avoid a probable default. Fitch noted the company’s strained cash flows due to underpayments from Guaranteed Buyer, whose debt totaled EUR 59m as of end-June. Fitch expects to further downgrade DTEK Renewables to RD after it executes the consent solicitation and then upgrade the rating, most likely to CC.

The NBU has lowered its estimate of additional foreign currency demand to be generated by the end of this year as a result of the already approved and pending F/X liberalization measures to $4.0bn from $5.5bn. According to the Bank, daily cross-border currency outflows resulting from its permission for companies, effective as of May 4, 2024, to pay interest on their “old” external debt from onshore accounts, averaged $2.3m/day, with 205 companies using this opportunity over the period. Additionally, the partial relaxation on repatriation of dividends, in effect since May 13, triggered $4.3m of outflows per day, with 197 companies availing themselves of this option. On a related note, the central bank stressed that it prefers to continue easing F/X restrictions rather than issuing individual permits to selected companies to transfer F/X abroad.