Dominance of Public Debt and Transformation of Financial Intermediation: State-Owned Banks as a Channel of Sovereign Risk Concentration in Ukraine (Наукові праці Міжрегіональної Академії управління персоналом Економічні науки)

Summary

• By 2024–2025 the share of state capital in the net assets of Ukraine's banking sector exceeded 50%.p.2
• State banks' holdings of domestic government bonds (OVDP) rose by UAH 568 billion.p.6
• The share of government bonds in state banks' assets rose by 13.5 percentage points to 45.0% in 2025.p.6
• Almost half of state banks' assets are accumulated in government debt instruments.p.6
• The period analysed starts after the nationalization of PrivatBank in 2017 and runs through 2025.p.5
• Government principles for reforming state banks aimed to reduce the state share in the banking sector to about 25% by 2025.p.10

Key insights

1. The study finds that state banks increasingly serve government debt financing instead of lending to the real sector.p.1
2. A critically state-dominated banking system (50%+) operating under total war has no analogue in world practice.p.3
3. Government bond holdings by state banks grew by UAH 568 billion, faster than their credit portfolio.p.6
4. The share of government bonds in state banks' assets reached 45.0% in 2025, up 13.5 percentage points.p.6
5. The Sovereign Absorption Bank Model is proposed to formalize how banks shift portfolios towards sovereign debt.p.6
6. Experience of Argentina and Turkey is used to identify risks and scenarios for the Ukrainian banking system.p.4
7. Proposed directions include gradual partial privatization or reduced state control of state banks.p.10