How to facilitate corporate lending in Ukraine: causes of stagnation and policy recommendations

Since the onset of Russia’s full-scale invasion, Ukraine’s banking system has remained stable, but corporate lending has steadily declined. This trend stems from a combination of:

• heightened war-related risks,
• reduced credit demand from businesses,
• structural barriers on the supply side.

While private sector lending is essential for wartime resilience and post-war recovery, access to affordable credit remains limited.

This study explores the key drivers behind the lending slowdown and offers practical solutions to expand credit access. Using national statistics, business surveys, and econometric modeling, it finds that war-related shocks outweigh monetary policy factors like interest rates.

Key Findings

• War-related risks are the main constraint, reducing corporate loan volumes by 0.12% to 0.21% monthly.
  Interest rates played a stronger role before the invasion but became less impactful in 2022–2023, regaining relevance as macroeconomic stability improved.

• The crowding-out effect of government bonds (OVDPs) was temporary and counter-cyclical, peaking in early 2022.
  Banks reallocated funds to safer assets as demand for loans fell — but this effect faded by 2023. CD rates had only a short-lived, modest impact.

• Lending behavior varies across bank types:

  • Foreign banks are largely insulated from domestic shocks.

  • Private Ukrainian banks are driven by profitability.

  • State-owned banks (USBs) remain risk-averse and prioritize government securities over business lending.

• Lending recovery is underway, especially for market-based loans. It is supported by lower policy rates and stronger borrower profiles.
  Still, many viable businesses — particularly SMEs and those in war-affected regions — remain underserved.

Policy Recommendations

1. Reduce war-related risks via government-backed insurance, targeted credit guarantees, and donor-funded de-risking tools.

2. Improve enterprise bankability by supporting SME training, encouraging formalization, and expanding access to non-bank finance (e.g. credit unions).

3. Mobilize state and foreign banks through directive lending schemes, guarantees, and incentives to shift from government securities to productive business loans.

4. Ensure policy predictability — especially in taxation and military conscription — to support business confidence.

5. Monitor the use of government instruments to avoid unintended distortions in the credit market.

Strategic Alignment

This analysis supports the implementation of the National Bank of Ukraine’s Lending Strategy and aligns with IMF priorities to expand access to finance and accelerate Ukraine’s economic recovery.

The study was prepared in сooperation with the German Economic Team.