Impact of the Government Debt Securities Market on the Loan Capital Market and the Primary Securities Issuance Market

The article is dedicated to the study of the role of domestic government bonds in the loan capital market and the primary securities market. Significant volumes of the government budget deficit necessitate its financing through the mechanism of government bonds (OVDP), which currently serves as the main source of funds. It is found that the major volume of OVDP is issued in national currency. The proportion of OVDP denominated in foreign currency fluctuated between 10.2% and 28.1% during the years 2021–2024. The majority of OVDP is owned by State-involved banks. Their share as of December 1, 2024, was 75.7% compared to 66.7% at the beginning of 2022. This situation indicates that the State predominantly uses the financial resources of the State-owned banks for financing the budget deficit. Based on the carried out analysis, it has been found that one of the reasons for the significant level of investment in government bonds is their high yield, which in certain years exceeded the interest rates on loans to non-financial corporations and households. High interest rates on OVDP bonds have exceeded interest rates on medium-term loans provided to non-financial corporations, which is an important factor in the rising demand for government bonds from banks, leading to a shift by banks from lending to economic entities towards investing in government bonds. Based on the volumes of securities issuance, it is proved that the placement volumes of government bonds significantly exceed the market for medium-term bank loans and the primary securities market. The reorientation of the banking system towards lending to the national economy requires limiting the issuance of government bonds and lowering interest rates, which is only possible through the implementation of a balanced budget and tax policy. To structurally restructure banks’ active operations in order to increase lending to entities in the real sector of the economy, a structural overhaul of the State borrowing policy is necessary.