Ukraine's banks can withstand a crisis. Can its economy?
The National Bank has reported a substantial strengthening of Ukraine's banking system. The stress test results do look convincing. Yet behind the optimistic figures lies a question the regulator has not fully answered: does banks' financial resilience mean they can support economic development?
There are grounds for the NBU's optimism
On 2 November, the National Bank of Ukraine published its 2026 banking system resilience assessment. The regulator's conclusion is unequivocal: Ukrainian banks are sufficiently capitalised to remain solvent and continue lending even through a deep and prolonged crisis.
The figures deserve attention. The stress tests covered 26 banks accounting for more than 90% of the system's assets. Only 11 institutions, controlling around 10% of assets, received higher capital adequacy requirements. The total estimated capital need fell to one-third of the previous assessment's level and amounts to around 3% of the system's regulatory capital at the start of 2026. This is an important result, particularly for a country that has lived through almost five years of full-scale war.
However, the results warrant a closer reading.
Banking resilience is not the same as economic resilience
The NBU's announcement effectively brings together two distinct concepts: banks' ability to withstand financial shocks and their ability to lend to the economy. One does not automatically imply the other. A bank may have high capital adequacy ratios, ample liquidity and stable interest income while limiting lending to businesses. For the bank, such behaviour may be entirely rational. Why expand risky lending when income can be earned from government securities or National Bank instruments?
The consequences for the economy may be different. If a large share of financial resources is concentrated in government and central bank instruments while private sector lending remains insufficient, financial stability does not necessarily translate into economic growth.
This raises a question:
Have Ukrainian banks become more resilient because the economy has strengthened, or does their resilience increasingly depend on the state's financial resilience?
These are different models, even if their capital adequacy indicators look similar.
The state and banks: mutual dependence
Ukraine's financial system has a distinctive structure shaped by war. The government needs substantial financing. Banks are major investors in government bonds. The National Bank supports monetary stability, including through its own liquidity management instruments. This model creates close links between public finances, bank profitability and banks' ability to build capital.
This mechanism is not inherently abnormal. Government bonds play an important role in many countries' banking systems. The question is the degree of risk concentration. What happens if state budget financing problems, rising exchange rate pressure, deteriorating loan quality and falling bank interest income occur simultaneously? Each shock in isolation may be manageable, but their combination creates a fundamentally different situation. Such interconnected risks should be central to analysing banking resilience during wartime.
Why did the capital need fall to one-third of its previous level?
This is perhaps the most interesting indicator in the published assessment.
At first glance, a threefold reduction in estimated capital needs suggests a substantial improvement in banking system health. But an economic interpretation requires more than the final result alone. Better ratios may reflect accumulated profits, lower credit risk, a change in asset structure or reduced risk-weighted exposures. These processes have different implications. Building capital through profitable lending to productive businesses is one story. Improving ratios by limiting risky operations and changing the balance sheet structure is another.
Both can improve a bank's financial resilience. Yet only the first directly indicates an expanding role in financing the economy. Moreover, the composition of the stress test sample has changed. Comparing different years therefore requires a comparable sample and consistent scenario assumptions. Without that decomposition, we know that estimated capital needs have declined, but cannot establish precisely how much of the improvement came from fundamental changes.
The audit confirmed loan portfolio quality. Does that rule out hidden risks?
According to the NBU, external auditors found no material errors in banks' credit risk assessments. This is a positive signal. However, auditing asset quality and forecasting future credit losses are different tasks. Ukrainian businesses operate amid damaged production capacity, energy constraints, labour shortages, migration and uncertainty over external financing. A borrower servicing a loan today may be unable to meet its obligations tomorrow because of events unrelated to the quality of its financial management.
The key issue is therefore not only the accuracy of current credit risk assessments, but also the banking system's ability to absorb new waves of losses as macroeconomic conditions deteriorate simultaneously. That is precisely why stress testing exists. But the quality of its conclusions depends on scenario severity, assumptions about bank behaviour and the treatment of mutually reinforcing risks.
What KVARTA proposes to examine
The KVARTA analytical system proposes a broader view of banking resilience than compliance with capital adequacy requirements alone. Five interconnected characteristics need to be examined.
First, capital quality. How effectively can it absorb actual losses, rather than merely ensure compliance with regulatory ratios?
Second, dependence on the state. What role do government bonds and NBU instruments play in banks' profitability, liquidity and risk structure?
Third, earnings resilience. Will banking remain profitable if interest income falls and credit losses rise?
Fourth, credit transmission. To what extent do available financial resources become affordable business loans, investment and new jobs?
Fifth, simultaneous crisis. Can the system withstand a combination of declining international assistance, a currency shock, fiscal difficulties, deteriorating loan quality and deposit outflows?
The last scenario is particularly important.
In real life, economic crises rarely unfold as a single isolated shock. More often, they form a chain of interconnected events. The ability to withstand that chain determines genuine systemic resilience.
The central tension in Ukraine's banking model
The NBU's results show that Ukraine's banking system can absorb substantial losses and remain solvent. This achievement should not be understated.
A complete assessment must also answer another question: as the system accumulates capital and liquidity, how effectively does it finance Ukraine's economic recovery? After the war, the country will need large-scale investment in industry, energy, housing, infrastructure and small businesses.
If banks remain financially resilient but cautious about long-term lending, the economy will face a problem: money exists within the financial system, but businesses lack sufficient development capital. This does not necessarily mean banks are inefficient. The causes may include excessive war risks, insufficient demand from creditworthy borrowers, weak creditor protection and a shortage of investment projects.
For economic policy, however, the outcome will be similar: financial stability without investment-led recovery on a corresponding scale.
KVARTA's conclusion
We do not question the positive trend recorded by the National Bank. The 2026 resilience assessment provides strong grounds for describing the banking sector as having a substantial capital buffer and a relatively small estimated need for additional capital. It does not, however, justify automatically equating bank solvency with a long-term capacity to finance economic recovery.
Capital is necessary but insufficient for an effective banking system. In our view, the next stage of assessment should comprehensively analyse the interdependence of banks and public finances, the resilience of bank income and actual credit transmission.
The NBU plans to publish bank-level assessment results at the end of December. Those data will enable a more specific examination of the regulator's conclusions.
Banks may be resilient enough to survive a crisis. But Ukraine's central question is different: is our banking system effective enough to help the economy emerge from it?
That matters far more than capital adequacy ratios alone.
This article is based on the National Bank of Ukraine's announcement of 2 November 2026, ‘The banking sector is sufficiently resilient and capitalised — resilience assessment results’. KVARTA's conclusions are an independent analytical interpretation of the published results, not the outcome of its own completed 2026 bank stress tests.