The State Takes Over Banks: What Risks Does This Create?

Ukraine’s banking sector is rapidly drifting towards state monopolization. Instead of reducing the state’s role, as is common in developed economies, the Ukrainian government is expanding its presence by creating yet another state-owned bank based on the First Investment Bank (PINBank). Does such concentration of state control really serve a purpose, and is Ukraine not repeating Russia’s scenario of state dominance in the financial sector?

How Is Ukraine Expanding State Control in the Banking Sector?

At the beginning of 2022, Ukraine’s four state-owned banks (PrivatBank, Oschadbank, Ukreximbank, and Ukrgasbank) accounted for:

• 49% of all banking assets
• 46% of liabilities
• 44% of equity capital
• 65% of the statutory capital of the banking system

However, over the past year, the share of state-owned banks has increased to 55% due to the nationalization of several banks previously owned by Russian stakeholders.

New State-Owned Banks: What Happened?

• July 2023 – The Cabinet of Ministers nationalized Sense Bank (formerly Alfa-Bank), previously owned by Russian oligarchs.
• January 2024 – Ukraine nationalized PINBank, which belonged to Russian businessman Yevgeny Giner.
• January 2025 – The Cabinet of Ministers decided to transfer PINBank to Ukrposhta to establish a postal bank.

These actions significantly expanded state presence in the banking sector, contradicting Ukraine’s long-term strategy of privatizing state-owned banks.

What’s Wrong with the Postal Bank?

At first glance, creating a bank based on Ukrposhta might seem logical – especially in terms of providing financial services to rural areas. However, there are several serious risks:

1. Increased Corruption. State-owned banks in Ukraine have often been used for non-transparent financial schemes and political influence. A new state-owned bank only amplifies these threats.

2. Financial Burden on the Budget. The war demands every available hryvnia, and investing in a new state-owned bank instead of defense or critical infrastructure is illogical.

3. Reduced Competition. State-owned banks receive preferential treatment, squeezing out private banks. This lowers the quality of banking services and makes businesses more dependent on the state.

4. Departure from Privatization Goals. The government’s strategy was to reduce the state’s share in banking. Instead, we are witnessing the opposite trend – even more state control.

Are We Repeating Russia’s Path?

In Russia, state-owned banks control over 70% of the financial market. The largest, Sberbank, alone accounts for about 25% of all banking system assets.

Such a model creates a highly centralized market, where the government holds leverage not only over state-owned enterprises but also over private businesses.

Ukraine risks heading in the same direction. Expanding state control over the banking sector may distort the market and make the financial system excessively dependent on government decisions.

Where Is This Policy Leading Us?

If this trend continues, will Ukraine’s banking system turn into a Russian-style model? Will we become a country where the government controls major financial flows?

Ukraine does not need an expanded role of the state in finance – it needs market-driven reforms and a competitive environment.

Only this approach will allow Ukraine to integrate into the Western economy, rather than replicate the financial schemes of a neighboring country that Ukraine seeks to distance itself from.