Activities of Ukrainian Banks in the Government Bond Market as a Factor of the Financial Intermediation Paradox

The relevance of the article’s topic is explained by the matter that Ukrainian banks, despite unfavorable macroeconomic conditions, possess significant liquidity and demonstrate a substantial positive financial outcome. Meanwhile, the pace of credit support for the economy remains low, while Ukrainian banking institutions are actively involved in the government bond market. The aim of the article is to substantiate the presence of manifestations of the financial intermediation paradox, which is reflected in the excessive activity of Ukrainian banking institutions in the government bonds market. This is proved by analyzing the activities of Ukrainian banks in the market of government debt instruments, as well as assessing their lending activity. In particular, the article provides the calculation of the credit penetration indicator, which reflects the share of loans issued by banks in relation to GDP. Against the background of a similar indicator of foreign countries in Ukraine, this indicator demonstrates an insufficient level. Even despite low economic activity and a number of problems related to the ongoing military actions, the demand for credit resources remains for certain categories of businesses. However, banks do not meet this demand for a number of objective and subjective reasons. An analysis has been conducted on the dynamics of the indicator reflecting the permissible activity of banks in the government bonds market, specifically the ratio of their investments to deposits. The limit for this indicator is set at 35%, which means that the deposit base should not be used for budgetary debt financing beyond this share. Nevertheless, in Ukraine during the analyzed period the indicator exceeded the established limit. Banks actively meet the demand in the domestic market of government debt instruments, which is verified by the ownership structure of Ukrainian government bonds. The National Bank of Ukraine also holds a significant share among the owners of government bonds. The article describes the reasons for the demand for government bonds among banks in Ukraine. A significant interest is shaped by the policy of the central bank, including the NBU’s stimulating measures, such as the ability to use government bonds as collateral for refinancing loans and to form reserves in government bonds. This accounting policy is reflected in the cost of credit services of banks and the weighted average rates on government bonds. The latter appear more significant and, considering their reliability, serve as a competitive alternative to lending to the economy. In conclusion, it is noted that the activity of banks in the government bond market may be one of the reasons for the displacement of credit activity and is a factor in the formation of the financial intermediation paradox in the banking system of Ukraine.