State banks during wartime: key issues and response measures

Abstract

Introduction. Ukrainian banking system in general and state-owned banks in particular have faced a set of unprecedented threats, risks and challenges associated with the outbreak of open armed aggression against Ukraine. The negative consequences of hostilities were, in particular, the loss of physical access of banks and customers to some branches and payment infrastructure, the growth of defaults and the suspension of lending. Problem Statement. Improving the stability and reliability of the banking system through the intervention of the central bank and creating favorable conditions for business. Purpose. The aim is to analyze the consequences of the armed conflict on the banking sector and substantiate the list of measures to reduce or neutralize this impact. Methods. General and special methods are used: analysis, synthesis, grouping, description, comparison, theoretical generalization and abstract-logical. Results. The actions of the Government and the National Bank in martial law were generally adequate, including measures to support the most vulnerable groups, reduce tax pressure on business, stimulate business activity by providing cheap loans under a number of government programs, comprehensive support for the banking system through the refinancing mechanism, mitigation of some regulatory requirements. The war made significant adjustments to the strategy of reforming state-owned banks. The structure of households\' funds also changed due to the sudden transformation of the pattern of their behavior. State-owned banks prefer to invest in treasury bills and NBU certificates rather than lending to customers. The main reason for the restrained growth of loan portfolios can be considered a decrease in demand for loans from reliable borrowers, and increasing credit risks. Conclusions. Banks with state capital have demonstrated their financial stability, have not experienced significant withdrawals from accounts, but have preferred to lend to large corporations or provide financial support to SMEs only through government programs of concessional loans. It is expedient to develop national loan restructuring programs together with the banking community, it is time to return to the idea of creating a full-fledged development bank in Ukraine on the basis of existing state-owned banks.

State Regulator’s Role in the Country’s Banking System During Wartime

“…Additional confirmation of this thesis is provided by the findings of Kuznyetsova [21] on the introduction of modern financial technologies into the regulatory field in the banking sector in a turbulent environment. The obtained result is supported by an earlier study by Bortnikov et al [22] on the need for a comprehensive approach to the work of the banking sector regulator during the war with due regard to the multidirectional aspects of the banking sector.…”

“…Kuznyetsova et al [21] determine the following areas of purposeful changes in the business architecture of the banking sector in the economy of Ukraine: 1) decrease in credit activity of banks with retail, corporate and universal business models; 2) stimulation of credit activity of banks with a corporate business model with retail financing and a business model of limited credit intermediation. In turn, Bortnikov et al [22] focus on the problems of the regulator's comprehensive approach to managing the banking sector during the war in terms of the interaction of banks with clients, infrastructure availability, stabilization of the situation with non-payments on credit obligations due to the volatility of the exogenous situation. The results from the above-mentioned works were used in this study when identifying a set of government actions in the banking sector during the war.…”

Перспективи Післявоєнного Відновлення Фінансового Сектора України

“…This result is confirmed by the earlier work of authors [18], which focuses on the micro-and macro-factors of ensuring the adequate functioning of the financial sector of Ukraine during the war. The earlier work of authors [20] emphasizes the critical importance of the role of state banks in ensuring the viability of the economic system of Ukraine during the war and stimulating post-war recovery. These findings are supported by the result of the previous work of authors [24] on the role of the NBU in the implementation of monetary policy during the war in the context of achieving the goals of restoring the financial sector in the postwar period.…”

“…Author [19] studies the theoretical and practical aspects of the recovery of the economy of West Germany in the post-war period in the light of experience that can be applied by Ukraine. In an analysis of the functions of state-owned banks during conflicts, in paper [20], identified the most important challenges and necessary countermeasures to support the financial stability of Ukraine during the war, in particular, in terms of adequate management of stateowned banks, in particular, risk management and anti-crisis measures.…”