DOMINANCE OF PUBLIC DEBT AND THE TRANSFORMATION OF FINANCIAL INTERMEDIATION: STATE-OWNED BANKS AS A CHANNEL OF SOVEREIGN RISK CONCENTRATION IN UKRAINE

Abstract

The object of the study is the banking system of Ukraine under martial law, with a particular focus on state-owned banks as a key segment of the financial sector. The paper addresses the problem of the growing share of government debt in bank assets and the resulting transformation of financial intermediation. The aim of the study is to analyze the impact of the dominance of state-owned banks on the asset structure of the banking system and to substantiate directions for reducing risk concentration. The study finds state-owned banks have played a leading role in financing the state budget through active investments in domestic government bonds. The share of these instruments in their assets has increased significantly, indicating a shift from traditional lending activities to servicing public debt. It is demonstrated that this trend is accompanied by a crowding-out effect in relation to private sector lending and leads to an increased dependence of the banking system on the fiscal position of the state. The obtained results are explained by the influence of regulatory incentives, a high level of economic uncertainty, and the need to ensure macro-financial stability during wartime. In contrast to existing approaches, this study emphasizes the decisive role of state-owned banks in shaping the current model of banking system functioning. The practical significance of the results lies in identifying strategic directions for reducing sovereign risk concentration, including asset diversification, stimulation of real sector lending, and a gradual reduction of the state’s role in the banking sector. The findings can be applied in the formulation of public financial policy in the context of post-war recovery.