THE ROLE OF BANKS IN FORMING THE MARKET OF GOVERNMENT SECURITIES: ANALYSIS OF IMPACT AND INTERACTION EVALUATION

Abstract

The article reflects the current state of development of the market for government securities, focusing particularly on domestic government bonds (OGD) and identifies the influence of banking structures. In many market economies at the developmental stage, commercial banks are the main investors in government securities. However, excessive dependence on the banking system to mobilize financial resources for the purchase of government securities can be costly for both governments and investors. One significant aspect of these costs is the interest income received by state banks from OGD used for their capitalization during the period from 2013 to 2020. To increase the capital of these banks, the government issued OGD, which were exchanged for additional bank shares. The total amount spent on servicing these so-called capital OGDs during 2009–2020 was examined, as well as the impact of income from these bonds on the interest income of state banks as of 2019. The impact of the National Bank's discount rate on the change in the profitability of hryvnia-denominated OGDs was investigated, and it was found that a high correlation level (0.94) indicates a direct statistical relationship between the dynamics of the discount rate and the profitability of bonds. It is noted that as the discount rate increases, the profitability of OGDs increases, leading to increased demand for these financial instruments. A single-factor regression model was applied, which showed a high density of linear relationship between the National Bank's discount rate and the profitability of OGDs. Furthermore, a multiple linear regression model was considered to assess the impact of various factors on the OGD market and the activity of banks on it, including loans and asset arrears of banks, weighted average yield of OGDs, funds raised for the State Budget, NPL volumes, deposit certificates in banks' portfolios, and secondary market transaction volumes. It was determined that the financial decisions of banks significantly affect the government securities market, and these relationships are conditioned by various aspects of the financial market and macroeconomic conditions. Emphasis is placed on the importance of active work in the domestic debt market to ensure macrofinancial stability. At the end of the article, it is argued that the consequences of banks' investment activities in the government securities market can be ambiguous, contributing on one hand to the expansion of the banking system's assets and the development of the domestic stock market, while on the other hand, creating additional systemic risk and diverting bank resources from financing economic development.