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Ukraine's central bank to launch stress tests in April

Banknotes dedicated to the first anniversary of Russia's invasion on Ukraine are presented in Kyiv

KYIV (Reuters) - Ukraine's central bank will launch stress tests of commercial banks in April, more than a year after Russia began its full-scale invasion, its governor said on Monday.

Ukraine's economy shrank by about a third last year because of the war but the country's banking system has withstood the conflict, adjusted its operations and secured uninterrupted payments to companies and residents.

"We will start evaluating banks from April," Andriy Pyshnyi, the governor of the National Bank of Ukraine, wrote on Facebook.

"There are enough questions that need answers: the mission of systemically important banks..., the role of state-owned banks, issues of NPLs (non-performing loans) which resulted from the war, support for the military industry, lending to MSMEs (micro, small and medium-sized enterprises), the availability of financial services..."

The central bank has said Ukraine's banking system is operationally stable, liquid and profitable thanks to reforms and efforts to clean up of the sector in previous years.

Banks' profits reached 24.7 billion hryvnias ($675.42 million) in 2022, down from 77.4 billion hryvnias in 2021.

The stress tests are intended to ensure Ukrainian banks are better prepared for future shocks and set a timeframe for banks to replenish their capital. They should also give an indication of how long it will take to recover from the consequences of the war.

The central bank said it expected the majority of banks would be able to replenish their capital thanks to their future profits but that some banks might require support from shareholders.

Non-performing loans in banks' credit portfolios grew to about 38% in the fourth quarter of 2022, it said.

"The banks need to focus on restarting lending and supporting their business models in the conditions of the prolonged war," the central bank said in a statement.

Ukraine has 67 commercial banks, with the state controlling about 50% of the banking system.

(Reporting by Olena Harmash, Editing by Timothy Heritage and Christina Fincher)