Development of Consumer Lending in Ukraine: An Analysis Using the Methodology of System Dynamics
Petrovskyi O. V.

Petrovskyi, Oleksii V. (2023) “Development of Consumer Lending in Ukraine: An Analysis Using the Methodology of System Dynamics.” The Problems of Economy 4:182–190.
https://doi.org/10.32983/2222-0712-2023-4-182-190

Section: Finance and banking

UDC 336.7

Abstract:
Consumer lending in Ukraine began to develop actively in the early 2000s. During this period, there were several stages of transformation of the lending market, each of them gave rise to certain problems and brought the system to a new level of development. The system-dynamic model, presented in our work, reflects the consumer lending market of Ukraine as an interaction of subsystems and a number of external and internal factors, in which the dynamics of lending is determined by 5 key factors: the policy of the central bank (CB), gross domestic product (GDP), the share of FinTech companies as competitors in the lending market, the yield of government bonds, which are an alternative to granting a loan, as well as the rigidity of risk management. The aim of the article is to apply this model to analyze the consumer lending market in Ukraine at each stage of its development; identification of factors that have a key impact on its dynamics; analysis of specific features of their manifestation on the basis of the built system-dynamic model. For each of the stages, a system-dynamic model was applied and the manifestation of factors and their intensity were outlined. The carried out analysis showed the following features: • the first stage – rapid GDP growth and high risk appetite of banks causes significant demand and supply for consumer loans; • the second stage is a change in the rigidity of risk management: from the cessation of lending at the time of the crisis to the active increase of loan portfolios by banks in 2012-2013, which is fully in line with Minsky’s theory. A positive role in this was also played by high interest rates on loans, which increased the interest income of banks; • the third stage is the emergence of FinTech lenders that take market share from banks, as well as the impact of the NBU discount rate on the demand for loans. • the fourth stage – a significant increase in lending risks forces banks to tighten risk management and makes investments in government bonds more attractive. An analysis of the application of the system-dynamic model to genesis allows us to determine certain regularities. The assumptions about the manifestation of factors and their intensity can be used to substantiate scenarios for the development of the system.

Keywords: banking, consumer lending, system dynamics.

Fig.: 9. Bibl.: 27.

Petrovskyi Oleksii V. – Postgraduate Student, Department of Finance, National University of Kyiv-Mohyla Academy (2 Skovorody Str., Kyiv, 04655, Ukraine)
Email: oleksii.petrovskyi@ukma.edu.ua

List of references in article

“A System Dynamics Approach to Understanding the Use of Banks and Alternative Financial Services in St. Louis“. Social System Design Lab Washington University in St. Louis. 2010. https://www.stlouisfed.org/-/media/project/frbstl/stlouisfed/Files/PDFs/Community%20Development/WashU-Social-Sciences-Design-Lab-Report-1-21-11.pdf
Aikman, D., Bush, O., and Taylor, A. “Monetary versus macroprudential policies: causal impacts of interest rates and credit controls in the era of the UK Radcliffe Report“. NBER Working Paper 22380. 2018. http://www.nber.org/papers/w22380
Bouis, R. “Banks' Holdings of Government Securities and Credit to the Private Sector in Emerging Market and Developing Economies“. IMF Working Paper. 2019. No. WP/19/224. https://www.imf.org/en/Publications/WP/Issues/2019/10/11/Banks-Holdings-of-Government-Securities-and-Credit-to-the-Private-Sector-in-Emerging-Market-48651
Braslins, G. et al. “GDP and lending behaviour: empirical evidence for baltic states economies“. Regional Formation and Development Studies, vol. 10 (2) (2022): 31-45. DOI: 10.15181/rfds.v10i2.139
“European Union Household Debt: % of GDP“. CEIC. https://www.ceicdata.com/en/indicator/european-union/household-debt--of-nominal-gdp#:~:text=European%20Union%20household%20debt%20accounted,Sep%201997%20to%20Sep%202023
Gebski, L. “The Impact of the Crisis Triggered by the COVID-19 Pandemic and the Actions of Regulators on the Consumer Finance Market in Poland and Other European Union Countries“. Risks, 102, vol. 9 (6) (2021). DOI: 10.3390/risks9060102
“Household Debt and Credit Report“. Federal Reserve Bank of New York. https://www.newyorkfed.org/microeconomics/hhdc
Ishtiaq, M. Risk Management in Banks: Determination of Practices and Relationship with Performance. PhD Thesis. University of Bedfordshire, 2015.
Kaminskyi, A. et al. “Dynamic framework for strategic forecasting of the bank consumer loan market: Evidence from Ukraine“. Banks and Bank Systems, vol. 18 (3) (2023): 87-100. DOI: 10.21511/bbs.18(3).2023.08
Lawrence, D., and Solomon, A. Managing a Consumer Lending Business. New York, NY: Solomon Lawrence Partners, 2013.
Minsky, H. Stabilizing an Unstable Economy. New Haven, Connecticut: Yale University Press, 1986.
Phan, D. H. B. et al. “Do financial technology firms influence bank performance?“ Pacific-Basin Finance Journal, 101210, vol. 62 (2020). DOI: 10.1016/j.pacfin.2019.101210
“USD (US Dollar) UAH (Hryvnia) Historical Data Chart 2008“. https://exchangerates.org/usd/uah/in-2008
Wheat, D. The Feedback Method. A System Dynamics Approach to Teaching Macroeconomics, 2007.
Belinska, H. V. “Aktualni problemy bankivskoi systemy Ukrainy: prychyny vynyknennia ta shliakhy rozviazannia“ [Actual Problems of the Banking System of Ukraine: Causes and Solutions]. Finansy, oblik, banky, no. 1(21) (2016): 34-42.
Bohdan, T. “Finansovo-ekonomichni naslidky viiny“ [Financial and Economic Consequences of the War]. 2023. https://lb.ua/blog/tetiana_bohdan/550614_finansovoekonomichni_naslidki.html
“VVP Ukrainy za rokamy“ [GDP of Ukraine by Years]. NABU. https://nabu.ua/ua/vvp-2.html
“Zvit pro finansovu stabilnist, hruden 2019 roku“ [Financial Stability Report, December 2019]. NBU. https://bank.gov.ua/news/all/zvit-pro-finansovu-stabilnist-gruden-2019-roku
“Indykatory hroshovo-kredytnoho rynku“ [Indicators of the Money Market]. NBU. https://nabu.ua/ua/indikatori-groshovo-kreditnogo-rinku-2.html
Kaminskyi, A. B. “Kontseptualni pidkhody do orhanizatsii system ryzyk-menedzhmentu spozhyvchoho kredytuvannia“ [Conceptual Approaches to the Organization of Consumer Lending Risk Management Systems]. Naukovi zapysky NaUKMA. Ekonomichni nauky. 2013. http://nbuv.gov.ua/UJRN/NaUKMAe_2013_146_11
Kukhtii, L. P. “Hlobalna finansova kryza ta yii vplyv na diialnist bankivskoi systemy Ukrainy“ [The Global Financial Crisis and Its Impact on the Banking System of Ukraine]. Akademichnyi ohliad, no. 1 (2010): 43-47.
“Nahliadova statystyka. Dokhody ta vytraty bankiv Ukrainy“ [Supervisory Statistics. Incomes and Expenses of Ukrainian Banks]. NBU. https://bank.gov.ua/ua/statistic/supervision-statist
“Nahliadova statystyka. Pokaznyky diialnosti finansovykh kompanii ta lizynhodavtsiv“ [Supervisory Statistics. Performance Indicators of Financial Companies and Lessors]. NBU. https://bank.gov.ua/ua/statistic/supervision-statist
“OVDP, yaki znakhodiatsia v obihu za nominalno-amortyzatsiinoiu vartistiu“ [OVDP, Which Are in Circulation at Nominal and Amortized Cost]. NBU. https://bank.gov.ua/ua/markets/t-bills
“Statystyka finansovoho sektoru. Kredyty, nadani depozytnymy korporatsiiamy (krim Natsionalnoho banku Ukrainy)“ [Statistics of the Financial Sector. Loans Granted by Deposit Corporations (Except the National Bank of Ukraine)]. NBU. https://bank.gov.ua/ua/statistic/sector-financial
“Chastka nepratsiuiuchykh kredytiv u bankakh u 2022 rotsi zrosla do 38 % unaslidok viiny“ [The Share of Non-performing Loans in Banks Increased to 38% in 2022 as a Result of the War]. NBU. https://bank.gov.ua/ua/news/all/chastka-nepratsyuyuchih-kreditiv-u-bankah-u-2022-rotsi-zrosla-do-38-unaslidok-viyni
Chyrak, I. “Vplyv finansovoi kryzy na bankivsku systemu Ukrainy“ [The Impact of the Financial Crisis on the Banking System of Ukraine]. Ekonomichnyi analiz, vol. 1, no. 8 (2011): 421-424.