UAH-denominated lending to Ukrainian businesses has been expanding at an annual rate of around 30% for more than a year, marking the country's longest sustained period of corporate credit growth in 15 years, the National Bank of Ukraine (NBU) said, while warning that rising government debt to banks under a subsidised lending programme could undermine future expansion, reported Ukraine Business News.

The central bank said companies of all sizes were increasingly turning to bank financing despite the challenges of wartime conditions, with lending growing particularly rapidly to defence manufacturers and projects aimed at rebuilding Ukraine's damaged energy infrastructure.

The acceleration in lending reflects a gradual recovery in business confidence as companies invest in production, reconstruction and working capital despite Russia's continued attacks on critical infrastructure.

According to the NBU, the number of companies that regularly borrow from Ukrainian banks has doubled over the past decade. Even so, bank financing remains underutilised, with only around one-third of Ukrainian companies by asset value currently using bank loans.

The central bank said this suggested significant room for further credit expansion while also highlighting that demand for bank financing remains relatively limited across parts of the corporate sector.

Banks, however, are facing growing pressure on profitability.

The NBU said administrative costs have risen, loan-loss provisions have gradually returned to levels seen before the war, and higher taxation has reduced banks' ability to accumulate capital needed to support continued growth in lending.

The central bank also highlighted mounting fiscal pressures associated with the government's Affordable Loans 5-7-9% programme, under which the state subsidises borrowing costs for businesses.

According to the NBU, unpaid government compensation owed to participating banks under the programme could reach around UAH10bn ($240mn) by the end of this year.

As of early June, loans issued through the programme accounted for 33% of all UAH-denominated corporate lending portfolios, underlining its growing importance to business financing.

The NBU said the continued expansion of the programme had increased pressure on the state budget and raised the risk of further accumulation of government debt to banks if compensation payments were delayed.

Launched before the war and subsequently expanded, the Affordable Loans 5-7-9% programme has become one of the government's principal tools for supporting businesses by providing subsidised financing to small and medium-sized enterprises as well as companies investing in strategically important sectors.