Structural changes in the financial services market in Ukraine: impact of war

Abstract

Мета статті – охарактеризувати структурні зміни на ринку фінансових послуг, спричинені війною, та визначити механізми забезпечення стабільності ринку в умовах воєнного стану в Україні. Наслідком повномасштабної агресії стало помітне зменшення кількості фінансових посередників, зокрема страхових компаній та кредитних спілок, та кількості банківських відділень. Війна загострила проблеми з ліквідністю та платоспроможністю, що зумовило перерозподіл активів на користь банків. Високий рівень цифровізації фінансових послуг в Україні дав змогу забезпечити належний рівень доступу клієнтів до таких послуг і підтримати довіру. Застосування цифрових фінансових інструментів та вдосконалення їх регулювання розглянуто як пріоритетні напрями розвитку фінансового сектору України.

Purpose. The purpose of the paper is to characterize the structural changes in the financial services market caused by war and identify the main trends and mechanisms for ensuring the stability of the market under martial law in Ukraine. Design/methodology/approach. We used the data from the financial market regulators to analyze the impact of a full-scale invasion on financial institutions’ activity and operations as well as to compare the contemporary trends in different sectors of the financial market in Ukraine. Findings. Our research examines the financial landscape in 2022, revealing a marked decline in the presence of financial intermediaries, notably in insurance companies and credit unions. Concurrently, there has been a substantial reduction in the number of bank branches. The sharp decline in the number of financial institutions can be attributed to multiple factors, including some institutions operated in regions occupied by Russia, preventing continuity after the invasion, and others involved in high-risk activities facing NBU scrutiny revealing violations. The war intensified liquidity and solvency issues, with numerous failed institutions lacking a safety margin and unable to attract resources amid economic deterioration. Despite these structural shifts, the overall assets of financial institutions have not decreased. The analysis showed the redistribution of assets in favor of banks. The market share of financial companies and pension funds experienced a slight decrease, with insurers and credit unions facing more significant losses. Practical implications. The high level of digitalisation of financial services in Ukraine allowed for ensuring an adequate level of access to financial services in the first months of the war when it was critical to maintaining customer confidence in the financial sector. Accordingly, further digitisation of financial transactions and improvement of regulatory approaches to the use of digital financial instruments can be seen as priority areas for the development of Ukraine’s financia sector. Originality/value. The research is an attempt to assess the extent of the impact of critically negative external factors on the financial sector in Ukraine, in particular, to identify structural changes caused by the war. Prospects for further research are related to the study of the medium- and longterm aspects of this impact.