Scientific Center of Innovative Researches, International Conference on Corporation Management-2022

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Characteristics of methods of managing the financial stability of a commercial bank
Marian Yunatskyi, Karina Krachun


Abstract


The state of the modern economy, which is based on a variety of economic entities, from small and medium-sized businesses to corporations, largely depends on the reliability and stability of the banking system. An important role is played by banking institutions as financial intermediaries that ensure the functioning of such an economic process as "savings - investments".

The problem of financial stability of commercial banks is one of the most important problems of the domestic economy at the present stage of its development.

The financial stability of the bank is the main condition for the normal functioning of the bank. It is formed under the influence of internal and external factors and is assessed using both individual indicators and bank ratings [1].

The financial stability of a commercial bank is a qualitative characteristic of the bank's financial condition, which reflects the optimal balance of financial resources, as well as the bank's assets with high support for liquidity and solvency, risk minimization and profit growth.

There is some concern that the bank's sustainability depends on the balance of its liabilities and assets, the number of customers and the quality of the loan and investment portfolio. It should be noted that this does not take into account such components of financial stability as solvency, liquidity and profitability of the bank. Maintaining the financial stability of the bank is the main criterion for ensuring the continuity of the bank. However, despite the fact that the term "financial stability" is often used in scientific activities and official documents governing the activities of banks, there is still no clear definition of this term.

The financial stability of a commercial bank needs to be viewed from several perspectives, using a subjective approach, and from the perspective of the bank, customers, bank owners and the Central Bank.

Applying a subjective approach to the concept of financial stability, we can say that the financial stability of a commercial bank - is the ability of the bank at any time to provide a full range of financial services, maintain and increase share capital and act as a financial intermediary in the banking system. in order not to violate the trust of customers, owners, bank managers and regulators in the continuous and efficient operation of the bank.

To give a more accurate comprehensive assessment of the commercial bank, it is necessary not only to analyze the balance sheet and other reports, but also to characterize the economic condition of the bank's customer base, assess all competitors and lead the market. research, etc.

Sustainability management of a commercial bank in financial management involves the use of a set of four methods - analysis, evaluation, control and forecasting.

Analysis is a special kind of mental, cognitive activity of managers and analysts, systematic and constantly updated knowledge about the content, structure, interaction between individual elements of the managed object (in this case - the stability of a commercial bank) and its dynamics.

In turn, the analysis of the stability of a commercial bank can be presented in the form of a system of specialized knowledge aimed at:

- study of quantitative and qualitative characteristics of the stability of a commercial bank, the factors influencing it;

- development of ways to adequately assess them and possible ways to eliminate their negative impact;

- analytical substantiation of management decisions and forecasts (including the degree of probability of financial insolvency - bankruptcy of a commercial bank), assessment of their implementation, as well as predicting how the competitiveness of the credit institution will affect the decision [1].

It should be noted that the analysis as a method of managing the stability of a commercial bank is closely interrelated with other methods of managing it: - is a fundamental basis for forecasting; - assessment is unthinkable without analysis and always complements it; - control, regulation and supervision are also carried out on the basis of preliminary analysis.

It can be argued that the valuation procedure is a sequence of actions established by regulations of the Bank of Russia and the internal documentation of a commercial bank to determine the degree of compliance of the commercial bank's stability with their requirements by appraisers. Currently, the assessment of the stability of a commercial bank involves the use of a number of domestic and foreign methodologies Fim (USA), CAMEL (USA), BAKIS (Germany), ORAP (France), PATROL (Italy).

For example, Fim (USA) allows to identify financial problems of banks that arise between inspections based on current reporting, good qualities of the model are the ability to predict bank bankruptcy, a wide range of indicators, flexibility of the model, and the disadvantage is the forecast for only 2 years.

The CAMEL model (USA) is a standardized rating system that evaluates the bank's performance on six components: capital, asset quality, liquidity, sensitivity to market risks, its strengths include standardization, wide coverage of analyzed indicators, slow adaptation to shortcomings. Changing the external market situation, depending on the objectivity of supervisors, does not imply the likelihood of bankruptcy.

The BAKIS model (Germany) calculates almost 50 indicators that characterize the risks borne by banks, based on regulated reporting of banks. The assessment of indicator levels is based on a comparative analysis of data from one bank with indicators from other banks belonging to the same group. It is positively characterized by standardization, evaluation efficiency, identification of general trends in the financial sector, a wide range of analyzed indicators, the negatives include high complexity, which does not take into account systemic changes.

ORAP (France) is used as a multi-factor software package to evaluate a specific financial institution. Identifies existing problems in the bank on the basis of all components of risks associated with its activities, using quantitative and qualitative information. The positive qualities of the model include the use of a wide range of diverse information, speed of analysis, availability of data for analysis, and the disadvantages - the fact that it does not provide for the possibility of bankruptcy.

PATROL (Italy) - the system consists of 5 components: capital adequacy, profitability, credit quality, management, liquidity, where the speed of analysis is used as a basis for on-site inspections, but the model does not predict the probability of bankruptcy.

Thus, their strengths are standardization and practical effectiveness over a fairly long period of time. The weakness of foreign methodologies is that they cannot predict the probability of bank bankruptcy.

It should be noted that the stability of banks can be assessed by leading international rating agencies such as Standard \ Poor's, Moody's, Fitch and others [39]. The advantage of their activities is the publicity of the ratings of emerging banks, negative - the fact that often for their calculations, even such well-known agencies do not have all the information available to central banks and supervisors. It should be noted that even the world practice with its vast experience has not developed a single standardized methodology for assessing the stability not only of an individual bank but also of the banking system as a whole. There are several explanations for this situation:

- a huge array of confidential information about the activities of commercial banks, which must be analyzed by the subjects of evaluation;

- the specifics of national economies, which should be taken into account in the development of a single methodology for assessing the stability of a commercial bank.

The next method of managing the stability of a commercial bank, without which it is impossible to imagine any management process, is control. In commercial banks, it has its own specifics, as it is presented in the form of internal control, the need for which is determined by domestic law.

Thus, according to the Ukrainian legislation, which is updated on this issue, internal control is a process integrated into all processes and corporate governance of the bank, aimed at achieving operational, informational, compliance goals of the bank [2].

The update of the Regulations on the internal control system is aimed at:

- improvement of approaches to the organization and functioning of the Bank's JCC, ie the application of elements of the COSO methodology and criteria for their implementation to assess the complexity, efficiency and adequacy of the internal control system;

- strengthening the role of the Bank's Board in the management of the internal control system, where the Bank's Board is fully responsible for its establishment as comprehensive, adequate and effective;

- introduction of the model of 3 lines of protection. Use of a single model for the distribution of responsibilities between the bank's divisions;

- raising the culture of control, introducing an atmosphere of "tone at the top": corporate values - culture of control - awareness of employees about their role in the internal control system;

- Improving the requirements for the formation of the bank's internal bank documents when the bank develops internal bank documents covering all components of the internal control system.

The forecast of the stability of a commercial bank can be presented as a scientifically sound probabilistic forecast of changes in its level in the future under the influence of various factors. Forecasting theory traditionally distinguishes between two types of methods - quantitative and qualitative, which can also be applied to procedures for forecasting the stability of commercial banks. At quantitative forecasting by means of mathematical methods the analysis of indicators of stability of the credit organization for the last periods then on the basis of the received conclusions the forecast of future results is made is carried out. Such methods should be used in cases where the manager has sufficient accurate data. Qualitative forecasting (as opposed to quantitative) is based on the assessments and opinions of well-informed and qualified professionals and is usually used in cases where accurate data for previous periods are insufficient.

Thus, financial stability is an important characteristic of the financial performance of a commercial bank in a market economy. Its provision is one of the most acute problems in the activities of banks. In market conditions, a financially stable commercial bank has a competitive advantage over other banks, which is expressed in attracting additional resources, dominance in a particular market segment, increase deposits as a major source of banking resources and, consequently, expand investment, new opportunities for non-traditional services.


Keywords


management; financial stability; commercial bank

References


1.Shacz`ka, Z. Ya. & Blinnikova, K. Ye. (2017) Pidxody` do vprovadzhennya anty`kry`zovogo upravlinnya u diyal`nist` pidpry`yemstva. Pry`azovs`ky`j ekonomichny`j visny`k. Elektronny`j naukovy`j zhurnal. No5(05). Retrieved from: http://pev.kpu.zp.ua/vypusk5

2. Resolution of the Board of the NATIONAL BANK OF UKRAINE On approval of the Regulations on the organization of the internal control system in banks of Ukraine and banking groups from July 02 2019, № 88. (2019) [in Ukranian].