Transformation of banking risks and their impact on financial stability: identification and contemporary challenges

Abstract

This study examines the transformation of banking risks and their impact on the finan-cial stability of Ukraine’s banking system under prolonged systemic shocks. The purpose is to identify the relationships among shock sources, banking risks, transmission chan-nels, indicators of financial materialisation, and shock-absorption mechanisms, with par-ticular attention to the full-scale war. The empirical analysis covers 2018–2025 and uses official data from the National Bank of Ukraine, including non-performing loans, provi-sioning, profitability, lending, customer funds, capital and liquidity indicators,and the Financial Stress Index. A quantitative structural-dynamic design is applied, combining phase-based comparison, analysis of rates of change and percentage-point shifts, and triangulation of financial evidence for hypothesis testing. The results show that the 2022 shock simultaneously activated credit, market, foreign-exchange, interest-rate, opera-tional, and macrofinancial risks, but their materialisation was asymmetric. Asset quality and profitability deteriorated sharply, whereas customer funding,liquidity, and solvency remained comparatively resilient. In 2023–2025, profitability, lending, and asset quality recovered while the underlying military shock persisted. This pattern indicates that fi-nancial stability under a prolonged systemic shock depends not on the disappearance of risk but on the banking system’s capacity to limit transmission, absorb losses, and adapt its operating mechanisms. The scientific novelty lies in distinguishing resistance, primary adaptation, and adaptive resilience as successive stages of banking-system response and in defining adaptive resilience as the capacity to maintain and develop core banking functions while the source of systemic shock remains active. The findings support an interconnected but asymmetric interpretation of risk transmission and demonstrate the mediating role of capital, liquidity, stable funding, profitability, and operational continuity in preventing materialised risks from escalating into systemic banking destabilisation. The findings may be useful for researchers studying financial stability and systemic risk, central banks and supervisory authorities developing macroprudential and prudentialresponses to prolonged shocks, and banking institutions seeking to strengthen risk management, stress-testing practices, and financial and operational resilience.