“Risk-oriented integral assessment of the Ukrainian banks effectiveness”

Ensuring efficiency improvement of banks is a priority task for Ukrainian banking system at the stage of creating the developed financial sector of economy. The study of a bank performance, which takes into account a risk factor of banking business, is particularly relevant due to the need to ensure competitiveness and stability of both individual banks and the banking system as a whole. The aim of this article is to develop a methodology for integral evaluation of the Ukrainian banks according to the efficiency and risk criteria. Ratio analysis, mathematical methods, comparison and grouping, synthesis, table, matrix and graphic methods make the methodological basis of the research. The object of the analysis is the activities of Ukrainian banks. The study was conducted to elaborate a method for risk-oriented integral estimation of efficiency of the banks functioning. One can state that high efficiency and low risk of a bank’s work do not depend on the volume of assets, equity and profit for Ukrainian banks. The analysis made it possible to evaluate the strategies for the development of Ukrainian banks. The vast majority of Ukrainian banks have chosen a moderate strategy in the context of balancing the efficiency and riskiness of their activities. According to the results of factor analysis using Raiffeisen Bank Aval as an example, the main factors of gross profit growth were determined as increase in bank profitability and expansion of its active operations volume relative to its own capital.


INTRODUCTION
In an environment driven by accelerated processes of international integration, globalization of financial markets and frequent economic upheavals, finding the most effective ways to manage banking institutions becomes a particularly relevant issue.Increased competition in the financial sector forces banks to foster their competitiveness while balancing between direct efficiency and riskiness of their activities.Maintaining an economically justified balance between these values, a bank can develop dynamically in the long run and counteract a variety of crisis phenomena.That is why elaborating an approach to integral assessment of a bank through the prism of efficiency and risk indicators, as well as analysis of factors influencing them became the subject of the current study.international criteria to evaluate the country's banking system efficiency are researched by Kazarenkova and Kolmykova (2016).Banks' efficiency in transition economies in Central and Eastern Europe and the effect of geographical location on banking are researched by Degl'Innocenti et аl.(2017).Many studies focus on the banking business effectiveness in periods of crisis (Schoenmaker, 2017).Bremus and Fratzscher (2015), Cerutti and Claessens (2017) study the impact of crisis on the structural change in cross-border banking and international banks, cross-border and local affiliates' lending.
Different methods that are used in operational activity and financial indicators in private banks are compared (G.Sharma & D. Sharma, 2017).
Tan and Floros study the interplay between the level of competition, risk and efficiency using a sample of Chinese commercial banks.According to the research of banks in China, those banks that have higher levels of credit risk have lower levels of cost efficiency (Tan & Floros, 2019).
In general, the notion of effectiveness can be interpreted with regard to the following two approaches: the effectiveness of any activity is measured as a ratio of the results obtained (income) to the resources spent on this activity (expenditure); effectiveness that serves as a socio-economic measure and reflects the influence of the human factor (organization of work, employee competence, management structure, etc.) on the results achieved (Tolchin, 2007).The advantage of the first approach is the use of clear numerical indicators that can be calculated from existing accounting and reporting information, while the second involves the use of not only economic indicators but also social ones, etc., that are more qualitative and acquire a numerical expression through applying the expert evaluation method (Dzhonmurodova & Pohorielova, 2017).
In the scientific literature, there are many methods for determining the effectiveness of banking activities (Kungu, 2014).Based on this, the definition of this indicator is quite versatile.Thus, Buriak (2010) understands by the efficiency of banks as "its ability to achieve its goals through optimal use of resources while taking into account not only the microeconomic but also the macroeconomic function of banks in a market economy".Among the indicators that will affect the efficiency of the bank, the author allocates income and expenses.However, he does not provide a coherent and precise methodological approach to determining this efficiency.Ieris (2014) measures efficiency through the prism of managing cash flows as the most important economic category in the activities of banks, while still taking the indicators of profitability as the basis.Rybalka (2007) offers a systematic approach to assessing the efficiency of banking in the triple dimension of "profitability -riskiness -reliability".The advantage of this approach is in taking into account, in addition to the profitability indicators, other factors that affect the activities of the bank.This approach is considered more complete, because the mechanical increase of profitability is not always justified in terms of risks.
http://dx.doi.org/10.21511/bbs.14 (3).2019.11 In general, while studying this issue, most researchers focus on the indicators of profitability (Vivchar, 2016).Thus, it is necessary to develop and justify an integral approach to assessing bank efficiency, taking into account various indicators of the bank activity as well as the importance and priority of profitability indicators as a central economic measure of financial performance, and the indicators of the banking activity riskiness.

AIMS
The aim of the article is to develop an integral approach to assessing activities of banks that covers performance and risk indicators and to find reserves for increasing their profitability and reducing risk based on factor analysis.

METHODS
Analysis of the theoretical background of bank activity effectiveness and ways to evaluate it, abstraction and generalization, as well as induction and deduction methods are used.
The ratio analysis is the basis for elaborating a methodology to calculate the integral indicator of banks activity.The synthesis method, matrix, graphical and tabular methods were used to demonstrate the results of the integral evaluation.Analyzing the research results of the banking system of Ukraine in the context of banks' activity efficiency and riskiness, method of comparison and grouping was used.
The method of chain substitutions is used in factor analysis of gross profit and reserves of Ukrainian banks.The method consists in successive replacement of basic amount of the factor's influence with its analyzed value, provided that the values of other factors remain unchanged.In deterministic multiplicative factor system, total change of analyzed value is a function of the variables.Change of factor value influenced by different variables is calculated by the algorithm (Table 1).The determined result is compared with the previous one and the degree of influence of the analyzed factor is calculated.
Algorithm of the method of chain substitutions (Seredynska et аl., 2010).To ensure the efficient functioning of the bank, the proper organization of analytical work is first necessary, the results of which is the basis for making operational management decisions.Complex of the efficiency and risks indicators of a bank's activities, summed up by the appropriate method, is a basis for its integral assessment.
Comprehensive evaluations of bank performance are based primarily on the definition of an integral indicator (Packer, 2011;Mihajlovic, 2009).The variation of these techniques depends on which activity indicators are taken into account, how wide their spectrum is and what weight indices are assigned to the coefficient.The question about the number of factors that are taken into account remains open, the opinions of researchers and experts are very polar: some suggest to take only a minimum number of baseline factors, others recommend to use as many coefficients as possible.The results of the assesment are usually reflected in the points and indices.
The article suggests a method for integral assessment of banking activity based on efficiency and riskiness criteria, which is reasonably easy to apply and is accessible to all users, because it involves the use of public information.
The coefficients taken into account fully reflect the financial status of banks, the structure of incomes and expenses, and the efficiency and riskiness of their activities.
Given the quantitative performance indicators of the bank in the integral assessment, it is also necessary to take into account the risks associated with lack of equity capital (Kolesnik, 2011).This is due to the peculiarities of the banking business, which is vulnerable to various economic fluctuations and largely based on trust due to possible risks.In addition, banks in their pursuit to increase profit may not pay enough attention to risk management and thus, in the long run, not be able to ensure stable activity and formulate stress testing practices (Basel Committee on Banking Supervision, 2019).
Therefore, to form a balanced assessment of the bank's activities it is necessary to take into account, along with performance indicators, quality indicators of the capital-resource base and the adequacy of the reserve formation (Horshc, 2018).
In the group of coefficients for evaluating the efficiency of a bank, the indicators that can be used to estimate the revenue and expenditure structure, profitability of the bank, its activity and efficiency of the allocation of resources in active operations are prevailing (Table 1).
The group of risk assessment coefficients of the bank's operations makes it possible to estimate the amount of reserves and, accordingly, the risks of both lending and securities transactions in the total assets portfolio.Also, this group of indicators is focused on assessing the liabilities structure, equity capital adequacy and risks of credit and deposit activity (Table 2).
All the coefficients for evaluating the bank's performance suggested in the methodology combine the periodic performance indicators of the bank, that is, the indicators calculated for the

K se1
The coefficient of net interest margin The ratio of net interest margin to total assets

K se2
The coefficient of net trade margin The ratio of net trade margin to total assets

K se3
The coefficient of return on equity capital Net profit to equity ratio

K se4
The commission income ratio The ratio of commission income to total revenues

K se5
The interest income ratio The ratio of interest income to total revenues

K se6
The coefficient of the credit-investment activity The ratio of the amount of loans and securities provided in the bank's portfolio to the total assets of the bank

K se7
The efficiency of using assets of the bank The ratio of total income and aggregate assets

K se8
The return on assets The ratio of gross profit to total assets of the bank

K se9
The return on revenue The ratio of gross profit to the total income of the bank

K se10
The return on costs The ratio of gross profit to the bank's expenses

K se11
The coefficient of coverage of the bank's total expenses The ratio of total income to total costs

K de12
The coefficient of administrative costs The ratio of administrative costs to total costs

K se13
The multiplier effect of equity capital The ratio of total assets of the bank to equity

K sr1
Coefficient of credit risk coverage The ratio of reserves for impairment of loans in relation to the amount of loans issued

K sr2
Coverage ratio of securities transactions The ratio of reserves for impairment of securities in relation to the securities portfolio of a bank

K sr3
Coverage ratio of bank assets The ratio of reserves in relation to the amount of assets of a bank

K sr4
The ratio of liabilities in the equity of a bank Ratio of liabilities to equity

K sr5
The coefficient of deposit activity The ratio of deposits to total liabilities

K sr6
The coefficient of financial leverage of a bank The ratio of total assets to total liabilities of a bank

Risk factor of credit and deposit activity
The ratio of interest expense to interest income relevant period (income, expenses, profit), and instantaneous rates, the absolute size of which is calculated at the appropriate time in accordance with the balance sheet (assets, capital) (Baranovskyi, 2014).
Formation of the integral assessment of bank's activities involves a ratio analysis of banks in the context of the two above-mentioned groups of indicators.When assessing efficiency or risks of a bank's activity with one or another indicator, it should be noted that among them there are those whose "best" values are close to the maximum (stimulants, K se ), and those whose "best" values come close to a minimum (disincentives, K de ).The "best" indicator value is considered in terms of risk efficiency.If the coefficient is in the group of risk indicators, then one can accept it as a stimulant or disincentive, based on how it characterizes the risk (stimulants in this group have growth rates which indicate an increase in risk).If the coefficient is from another group, then it belongs to stimulants or disincentives, depending on growth or decrease in efficiency.
For stimulants the following is true: For disincentives: min .
For example, when the profitability indicators increase, they reflect higher efficiency of the bank activity and banks are trying to minimize indicators that take into account the cost ratios.
In terms of risk, indicators that reflect a tendency to increase in reserves show a rising risk of bank operations (Bruns, 2008).
In this case, a generalized estimation S j for each group of indices for the analysis of the bank's efficiency and riskiness is calculated using the formula: where А ij is a weight (value) of the і-th financial indicator for the j-th group; K sij is a calculated value of the і-th financial indicator-stimulant for the j-th group; K dij is a calculated value of the і-th financial indicator-disincentive for the j-th group.
Taking into account the weight (value) of coefficients, a summary result of the performance indicators S е will take the form: e se j se j se j se j se j se j se j se j se j se j se j se j Integral estimation for the risk indicators S r , taking into account the weight of the indices, will take the form: The final integral estimation (II -integral indicator) of the bank activity is calculated as follows: . er II S S = − Thus, this methodology gives a summary evaluation of the bank's performance and a general risk assessment of its activity by calculating the difference between aggregate indicators of stimulants and disincentives, and shows a comprehensive assessment of banking activity as the difference between a generalizing assessment of effectiveness and a generalizing risk assessment.

RESULTS
The proposed methodology has been used to assess performance of Ukrainian banks operating in 2018 and to analyze their integral assessment.All bank reporting data was received and summarized on the basis of consolidated data of the National Bank of Ukraine, the following are 20 banks with the best integral assessment with the separate groups for indicators of efficiency and risks (Tables 3-4).

Table 3. Generalized efficiency of banks
Source: Calculated by the authors based on financial reporting of banks (National Bank of Ukraine, 2017).Note: S r is calculated by the authors according to formulas (3), (5).Integral indicator is calculated by the authors according to formula (6).
Analyzing the integral assessment of Ukrainian banks and individual data in Table 5 (aggregate assets, equity and profits), one can state that efficiency of a bank does not depend on the scale of its activities.This indicates that proper management, a balanced structure of assets and liabilities of the bank, the quality of capital, and not its size, cost-effective credit and investment activities provide an efficient and low-risk work of the bank (Rahman, 2017).
This approach to determining the integral indicator of a bank's activity allows for assessing the balance of banking activity in the context of these two criteria and determining strategy for the bank development.Based on the final assessments of efficiency and risk of a bank's activities, one can talk about a development strategy chosen by a bank and the quality of management in financial institution, taking into account a balance of these two aspects.
Results of the risk and performance group estimates allow a bank to be placed in a two-dimensional coordinate system and determine its devel-opment strategy.The matrix of a bank's development strategy is shown in Figure 1.
Thus, position of a bank on the matrix shows strategic direction of the institution's development and availability of reserves for stable functioning over the next few years.Thus, banks that have reached positive values of the efficiency indicator and have risk indicators that do not exceed the average level in the banking system can be considered banks with a moderate development strategy.They have a fairly sensible policy to increase efficiency and minimize risks.Banks with an aggressive strategy with higher than average risk ratings in the banking system and positive performance indicators improve efficiency by increasing revenues and expanding the portfolio of assets through more risky assets than those with moderate strategy.Banks with risk-free development strategies work efficiently with minimal risk.Banks with a losing strategy work inefficiently, or even at a loss.At the same time, depending on level of risks in their operations and availability of funds, there are reserves available to improve their financial situation.

Тable 5. Indicators of banks activity
Source: Calculated by the authors on the basis of financial reporting of banks (National Bank of Ukraine, 2017).The chart shows that a vast majority of Ukrainian banks are conducting their activities in a fairly balanced way considering efficiency and risk.Moreover, more than a half have chosen moderate development strategy, that is, they conduct a well-balanced policy as to realization of credit and investment policy, attraction of funds for deposits and have an optimal structure of capital-resource base.

Тotal assets
Therefore, in the long run, they can provide stable functioning and demonstrate stress resistance to external and internal threats.There is still part of banks that have an aggressive development strate-gy.They show rather high performance indicators but characterized by significant level of risk activity.It should be noted that one bank has a risk-free strategy and there are no banks with losing strategy.Such results characterize the banking system of Ukraine as effective and stable.
While studying a bank's work, in addition to using the coefficient methodology of the study, it is important to evaluate absolute performance of the institution, in particular, using factor analysis (Gavurova, 2017).The main absolute indicator for evaluating performance of the bank is a volume of profit.Risks of work can be estimated considering changes in volume of reserves for all active operations of institutions.For factor analysis of gross profit and reserves a method of chain substitutions (Liamets & Tevyashev, 2004; Seredynska et аl., 2010) is used.
The factors influencing the volume of gross profits of a bank are as follows: • amount of equity capital of the bank (Z 1 ); • a coefficient of total return on assets of the bank (Z 2 ); • multiplicative effect of equity capital (Z 3 ); • profitability ratio of the bank (Z 4 ) (Table 6).
As can be seen from results of the factor analysis, despite an increase in bank's equity, an increase in the total return on total assets and expansion of activities, the volume of gross profit of the bank decreased significantly by UAH 2,588,168 thousand due to a decrease in the profitability ratio by 3.7 times.
To assess risks of a bank, the article analyzes reserves observing active banking operations.Factors influencing the amount of reserves for ac- The efficiency of using assets of the bank (the ratio of total income and aggregate assets) 0.141122087 0.154047475 The multiplier effect of equity capital (the ratio of total assets of the bank to equity) 5.559898861 6.612605001 The return on revenue (the ratio of gross profit to the total income of the bank) 0.530012395 0.144156082 Note: Calculated by the authors using the method of chain substitutions (Seredynska et аl., 2010).

Table 7. Factor analysis of reserves for active operations of Raiffeisen Bank Aval
Source: Calculated by the authors on the basis of financial reporting of Raiffeisen Bank Aval (National Bank of Ukraine, 2017).Coverage ratio of bank assets (the ratio of reserves in relation to the amount of assets of a bank) 0.463666895 0.099001686

Reference and calculation indicators
The ratio of liabilities in the equity of a bank (ratio of liabilities to equity) 4.559899066 5.612605001 The coefficient of financial leverage of a bank (the ratio of total assets to total liabilities of a bank) Note: Calculated by the authors using the method of chain substitutions (Seredynska et аl., 2010).
tive operations of a bank are defined as: a bank's equity (X 1 ), the bank assets coverage ratio (X 2 ), the ratio of liabilities in equity (X 3 ), and the coefficient of a bank's financial leverage (X 4 ).
Calculations for factor analysis of a change in the volume of reserves for active banking operations by the chain substitution method, which is presented above, are shown in Table 7.
During the year, the bank's reserves decreased from UAH 25,965,223 to UAH 7,138,819.This indicates an increase in the quality of the bank's assets portfolio and a decrease in the risk profile of active operations by reducing the asset coverage ratio and reducing the bank's financial leverage.

DISCUSSION
Results of the methodology implementation illustrated on Ukrainian banks confirmed its scientific validity and practical applicability and made it possible to study the efficiency of Ukrainian banks.The integral indicators of Ukrainian banks testify mainly to high polarization in efficiency of their activities and simultaneously demonstrate the balanced activity of most banks in the "efficiency-risk" terms.
The final scores of integral assessment with regard to efficiency and risk groups indicate the development strategy chosen by a bank in relation to the defined criteria and determine its position on the matrix of strategies for bank development.The placement of a bank on a matrix gives an opportunity to estimate the balance of banking activity efficiency level with the level of risk.
The Ukrainian banking system effectiveness and the activity of banks in particular are often assessed on the basis of their profitability and abso-lute amounts of capital, assets and income.At the same time, research is conducted in the context of groups of banks (Rushchyshyn & Kostak, 2018).
In contradiction to this approach, the developed methodology takes into account the relative indicators of different aspects of the banks' activity and allows assessing the effectiveness of a single bank and the banking system as a whole, regardless of existing groups.
During the research of the evaluation of the Ukrainian banking system effectiveness methodology, the authors focus on methodological and do not show it with specific examples (Dzholos & Savchenko, 2017).
The risk-based banks' effectiveness assessment results mostly in the rating of banks within the banking system of the state, while the integral assessment can be used to compare banks in different countries.
The study of the impact level of risk on the bank's development strategy (Chmutova & Kharytonova, 2017) focuses on risk indicators and does take into account efficiency.It is expedient to use the results of factor analysis to increase efficiency and minimize risks for the bank management (Sergienko, 2017).It allows controlling absolute rates of profit and reserves for active bank operations.Factor analysis with a method of chain substitutions has shown that for Raiffeisen Bank Aval, main factors of gross profit growth are increase in coefficients of the bank's total returns and the multiplier effect of equity, while a significant decrease in the profitability ratio of the bank is a factor of a significant reduction in gross profit.While reduction of the bank's assets coverage ratio and its financial leverage are factors that lead to decrease in the amount of total reserves for active operations of the bank.

CONCLUSION
The developed methodology of integral evaluation of bank performance makes it possible to assess the efficiency of a bank taking into account risks of its operations.It is based on multi-dimensional analysis of a bank's work, which can be carried out drawing on available public data.The integral indicator is a tool for comprehensive evaluation of banking activities and it can be used to analyze absolute efficiency and stability of banks in different banking systems.
The value of such an assessment for a bank management at the micro level is to determine the strategy of a banking institution development in the context of "efficiency-risk" parameters and to develop a set of measures to balance these two indicators.In terms of macroeconomic analysis, such an integral assessment gives an opportunity to assess the banking system on stability and overall efficiency.
Indicators of a risk-oriented integral assessment of the performance of state-owned banks enable us to assess the overall efficiency of banks, identify directions and intensify a search for reserves to increase the efficiency of banking activities and reduce risk.
The following directions for improving efficiency and stability of the Ukrainian banks should be outlined: reducing the cost of activities, finding new sources of income through expansion of the areas of interaction between banks and economic entities; optimizing the structure of income, expenses and assets, increasing the resource base.
Spokeviciute et аl.(2019) explore the activity of less efficient banks as compared to more efficient ones during financial crises in the USA.Ertürk (2016), Cohen et аl.(2014) analyzed post-crisis regulatory reform initiatives and their impact on efficiency and risks of banking institutions.Financial globalization and deglobalization in banking business are studied by Kleymenova et аl.(2016), Claessens (2017), and McCauley et аl.(2019).

Figure 2
Figure2shows banks of Ukraine that are placed according to the efficiency and risk indicators.

Figure 2 .
Figure 2. Banking system of Ukraine in the "Efficiency-Risk" parameters

Table 1 .
Indicators of effectiveness in the bank activities assessment Source: Compiled by the authors.

Table 2 .
Indicators of risk in the bank activities assessment

Table 6 .
Factor profit analysis of Raiffeisen Bank AvalSource: Calculated by the authors on the basis of financial reporting of Raiffeisen Bank Aval (National Bank of Ukraine, 2017).

Table A1 (
cont).Calculated indicators of Ukrainian banks.S e group

Table A2 .
Calculated indicators of Ukrainian banks.S r groupSource: Calculated by the authors on the basis of banks' financial reporting (National Bank of Ukraine, 2017).

Table A2 (
cont.).Calculated indicators of Ukrainian banks.S r group Compiled and calculated by the authors according to the National Bank of Ukraine's list of banks. Note:

Table A2 (
cont.).Calculated indicators of Ukrainian banks.S r group