The Regional Banking System in Shaping the Financial Space of Ukrainian Regions

Abstract

The article aims to provide a comprehensive analysis of the role of the regional banking system in shaping the financial space of Ukrainian regions, assess its current state, and develop recommendations for improving its effectiveness amidst existing economic disparities and challenges. The study employed a systemic approach to analyze the regional banking system as a subsystem of Ukraine's banking sector and the socio-economic system of the region. Based on NBU (National Bank of Ukraine) data, methods of comparative analysis and statistical observation were applied to identify regional disparities in the distribution of credit and deposit resources. It was found that Ukraine's regional banking system plays a key role in monetary and credit relations but faces significant difficulties. In recent years, there has been a trend towards a decrease in the number of regional banks and their share in total assets, leading to a concentration of capital in metropolitan and large industrial centers. The analysis revealed significant inequality between regions regarding the volume of issued loans and attracted deposits, with a clearly pronounced leadership of Kyiv. A cardinal shift in the direction of financial and credit resource movement has been established: regional banks predominantly accumulate deposits with subsequent outflow of funds to financial centers or their investment in securities, leading to the "washing out" of resources from the regions. The low level of the regional banking system's orientation towards lending to local businesses is partly due not only to the specifics of martial law but also to insufficient demand and the capacity of businesses to effectively utilize banking services. Ukraine's regional banking system operates under significant structural and functional disparities, which are exacerbated by the outflow of financial resources from less developed regions. The current state of the system does not provide sufficient support for investment processes and the reduction of inequality. To stabilize and activate regional lending, it is necessary to develop and implement effective mechanisms of state management and economic stimulation aimed at increasing the capitalization of regional banks and diversifying their sources of income.