War´s Ripple Effect: Regional Banking Dynamics in Times of Conflict - Insights from Ukraine

Sona Siva and Jaromir Baxa
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Sona Siva: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic & Institute of Information Theory and Automation, Czech Academy of Sciences

No 2025/26, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper examines the impact of the full-scale Russian invasion on regional banking activity in Ukraine, focusing on differences across regions directly affected by military operations, neighboring areas, and non-occupied regions. Using a dynamic difference-in-differences approach with multiple treatments, we find that war-induced disruptions extend beyond directly occupied regions, significantly influencing lending and deposit behavior also in regions neighboring the frontline. Lending in long-term occupied regions experienced the most severe decline, while short-term occupied areas and Kyiv also saw substantial reductions over time. Notably, the lending contraction in the regions neighboring occupied areas followed a pattern similar to that in the temporarily occupied regions, highlighting significant spillover effects. The shift toward short-term lending intensified in all affected regions, reflecting heightened financial uncertainty. The war also led to a widening of interest rate spreads, particularly in Kyiv and shortterm occupied areas, signaling elevated credit risk. Although deposits grew, lending remained limited after liberation, highlighting ongoing economic stagnation and constraint created by the partial dollarisation of the economy. These findings have crucial implications for post-war recovery policies, emphasizing the need for targeted financial support that should be extended beyond the regions directly involved in a war.

Keywords: banking activity; lending; deposits; war (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2025-11, Revised 2025-11
New Economics Papers: this item is included in nep-cis
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Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2025_26

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