Domestic market of nonbank financial services: strategic recovery scenarios

Abstract

As the global financial landscape evolves, the nonbank financial sector has gained prominence and plays a critical role in intermediating financial activities. However, recent developments have underscored the increasing susceptibility of this sector to potential crises and the destabilization of the financial system. The potential for liquidity risks is another significant concern. Nonbank financial and credit institutions heavily rely on short-term funding sources, making them susceptible to sudden disruptions in market liquidity or funding constraints during periods of stress. Moreover, the sector’s exposure to illiquid assets, such as real estate and long-term loans, poses additional vulnerabilities, as their valuations may rapidly deteriorate during periods of market distress. The purpose of the article is to substantiate the key areas of development of non-bank financial and credit institutions in the context of ensuring national economic stability, taking into account the introduction of martial law in Ukraine. The methodology of the system approach, comparison, analysis, synthesis, abstract-logical, economic-statistical, as well as the method of graphical representation of the research results was used. The article examines the growing vulnerability of the nonbank financial sector and its potential impact on the stability of the overall financial system. Current data on the functioning of the non-banking sector are presented, which confirm its importance and impact on the country’s economy. A number of supervisory approaches aimed at ensuring stability, transparency and protection of consumer rights in the market of non-banking financial services (NBFS) are highlighted. The importance of implementing an effective risk-oriented approach to the supervision of the activities of non-bank financial and credit institutions (NBFCI) and the preparation of a methodology for the supervisory assessment of risks of the NBFCI in terms of the ‘structural benchmarks’ declared in the Memorandum of Economic and Financial Policies with IMF is emphasized. Attention is focused on the identified key opportunities and limitations of the non-banking financial services market in the conditions of martial law. An important step in this direction is the harmonization of legislation governing the activities of nonbank financial institutions with the requirements and standards of the European Union. This stimulates interaction with international partners, enhances trust in the Ukrainian financial sector, and promotes the attraction of foreign investments.