Government bonds and corporate lending: an empirical study of commercial Ukrainian bank asset competition

Анотація

Purpose. The paper estimates the assets of commercial banks in Ukraine by the share of corporate loans and government bonds and identifies potential risks affecting the banking system and the economy. Methodology. This study conducts an empirical analysis of Ukrainian commercial banks’ balance-sheet assets to test whether asset composition is largely explained by two dominant components: corporate lending and holdings of government bonds. Empirically, we combine (i) Pearson pairwise correlation analysis, (ii) dispersion measures based on the coefficient of variation and standard deviation, and (iii) regression analysis using linear regression specifications to quantify the strength and stability of these relationships. Findings. Since Q2 2023, government bonds have accounted for a larger share of Ukrainian commercial banks’ assets than corporate loans, and the gap has continued to widen in favor of sovereign securities. A key macroeconomic concern is the associated contraction in corporate credit, which can depress private investment and labor demand, with adverse implications for output and employment. At the same time, increased bank demand for government bonds supports fiscal financing and can facilitate deficit coverage, including expenditures linked to social obligations, defense, and business support programmes. Testing whether banks’ propensity to hold government bonds is associated with standard performance proxies, we find no strong correlation with bank capital or total assets. Nevertheless, a higher bond share increases exposure to sovereign risk, with this concentration particularly pronounced for state-owned banks.Originality. It is recommended that the National Bank of Ukraine revise requirements for commercial banks' assets and introduce limits on investments in government bonds.

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