LIMITS OF STATE’S BANK CAPITAL CONCENTRATION AND INSTITUTIONS FOR COORDINATING OF LENDING TO THE ECONOMY

Abstract

Since the early 2000s, the processes of bank capital concentration have accelerated in Ukraine. After the crisis of 2008-09 and the clean-up of the banking system in 2014-16, the relevance of studying the genesis, current state and prospects of processes of state banking capital's concentration increased. By institutional limits to banking capital concentration, we mean a set of interrelated external, internal and informal restrictions, which is an integrated multifactorial system that is constantly changing over time, determining possible trajectories of the banking sector. Concentration tracks of the future structure of the ratio of state, foreign and local Ukrainian private capital are within certain institutional corridors of opportunities. The dynamics of concentration of the banking system by assets in Ukraine from 1998 to 2024 is studied, in particular, the indicators of the number of banking institutions, CRa5 and CRa10, the Herfindahl-Hirschman indices by assets are calculated. Also we analyses the current state of levels of concentration in the Ukrainian banking system. The experience of successful functioning of state-owned banks in CEE countries - primarily development banks, EximBanks and, to a lesser extent, universal banks working with the SME sector - is reviewed. We consider the current overly high share of the state in the banking system at the level of more than 53-60% to be temporary, historically determined and in need of reduction. We consider the current overly high level of the state share in the banking system at the level of more than 53-60% to be temporary, historically determined and in need of reduction. The authors concludes that the optimal limit for the concentration of state-owned banking capital is in the range of 25-30%. The article formulates promising proposals for institutional measures to transform the state-owned banking capital towards de-statisation of the Ukrainian banking system. In particular, the authors proposed the ways to improve the management of the system of state-owned banks by state bodies, and the prospects for the post-war IPO of the largest banks with state participation. In order to strengthen the state's long-term lending activities in priority sectors of the Ukrainian economy and reduce credit risks, we propose to establish a Bank for Reconstruction and Development on the basis of one of the existing state-owned banks or to establish a State Development Institution as a bank of banks, following the example of KfW (Germany) after WWII.