Abstract
The effective functioning of the banking sector has a key impact on the stability of economic growth. The study is aimed at monitoring the banking sector development and identifying causality between the banking sector and economic growth. The methodological tools of the research are Principal component analysis, causal relationship, and vector regression modeling. The empirical study is based on the World Bank databank by eight components (for integral analysis) and seven indicators (for causality analysis). The study presents an improved algorithm for monitoring the level of banking sector development based on calculating the integral coefficient. According to assessment, the level of banking sector development and realization of its potential in Ukraine is low and significantly inferior to the EU countries; in 2000–2019, the development of the banking sector in Ukraine was 0.061-0.153. The results obtained confirmed the large discrepancy in the development of Ukraine’s banking sector with some EU countries (the highest lag values were observed with the Czech Republic and Poland). The causality analysis revealed a strong favorable relationship between the level of development of the banking sector in Ukraine and GDP per capita (0.796), a moderate one – with foreign direct investment (0.400), and a reverse relationship with the level of national poverty (0.678). This study is of practical value for identifying two possible trajectories of a country’s development, namely, sustainable development and economic turbulence, and has allowed forming a conceptual vision of the role of the banking sector in achieving social and economic goals.
Highlights
High quality and stable functioning of the banking sector as one of the conditions for the effective functioning of a market economy play a key role in social and economic progress
It should be emphasized that the indica- (16.35% and 16.68%) among all indicators of the tors of “private sector lending by banks”, “the ratio banking sector development
Ukraine is char- tors and their weights, show the trends of its deacterized by the highest weight significance of the velopment for each indicator in particular
Summary
High quality and stable functioning of the banking sector as one of the conditions for the effective functioning of a market economy play a key role in social and economic progress. Assessments of this study consists of two consecutive but in- made based on the criterion of “compliance with terconnected blocks, it is based on the generaliza- the standards and quality requirements of finantion of scientific publications, which relate, first- cial management by the subjects of the banking ly, to the identification of factors and conditions, sector in the country” are endowed with a similar methodological approaches to assessing the bank- character Such conclusions can be made based on ing sector development, its impact on social and the international standards of financial and aneconomic development; secondly, to the meth- alytical reporting (Casta et al, 2019; Mantzari et ods, directions, tools and means of state policy al., 2017), reporting on the quality of using finanfor the formation and realization of financial in- cial instruments (Ryan, 2011), social responsibilstruments for realizing the banking sector’s po- ity of financial and credit structures (Burianová tential in stimulating sustainable development of & Paulík, 2014), accounting for financial transacthe country. Stock and money markets are still underdeveloped in these countries and their contribution to economic growth is limited and lack financial debts
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