Issue #4 (Volume 11 2016)

For core financial market activities like risk management and asset pricing, it appears to be crucial to investigate the “connectedness” among financial institutions. In times of economic crises, a suitable measure of connectedness can provide valuable insights of financial markets and helps to understand how institutions influence each other. In particular, depending on contractual obligations between financial institutions, the financial distress at a bank with large systemic impact is likely to cause also distress at other institutions. In the literature, the latter phenomenon is generally tagged by ’contagion’ and can eventually result in severe economic crises. The purpose of this paper is to investigate the connectedness among German financial institutions during the global financial crisis 2007-2009, where the authors focus particularly on 2008 and its height in September 2008 with the bankruptcy of Lehman Brothers. They make use of the definition of connectedness, as it was recently proposed by Diebold and Yilmaz (2014). Their approach relies on analyzing multiple time series of volatilities by a vector autoregressive (VAR) model and a generalized forecast error variance decompositions. It provides several meaningful measures of connectedness and allows for static (average), as well as dynamic (daily time-varying) analyses. The authors show that the connectedness in Germany can be described well by the model.

Keywords: сonnectedness, contagion, generalized variance decomposition, networks, spillover effects.
JEL Classification: C32, C58, G32, G33

The goal of the article is to consider peer-to-peer lending and its interaction with bank lending that creates an aggregate hybrid lending. The article’s objective is the research of development of P2P lending on the financial market and beyond, which is particularly relevant today. This goal is achieved by using the methods of evaluation and comparative analysis of different principles, which makes it possible to structure the general scientific understanding of P2P lending with the help of statistical methods. The study of the dynamics and structure of peer-to-peer lending in various countries for the period 2005-2016 led to the conclusion that in Ukraine, there is a decline in the share of bank lending in favor of peer-to-peer lending in the total amount of loans with an increasing role of non-bank and hybrid forms of len-ding in ensuring economic growth.

Keywords: peer-to-peer lending, banking institutions, credit portfolios of banks, investments, financial intermediaries, financial intermediation.
JEL Classification: A1, G21, G24

Increasingly, in the last decade, largely due to perceived greater shareholder pressures for more profitable performance, compensation maximization has taken center stage in some segments of the banking industry. Banks need to establish board governance committees with explicit responsibilities to monitor corporate ethics and culture. This paper aims to measure the correlation between dire economic conditions, competition, banking profitability, and misconduct. This is done by means of GDP comparisons to determine economic conditions, calculating z-scores to determine bank risk taking, and analysis of variance of return on assets, return on equity and z-scores, to determine profitability, and fines comparisons to determine misconduct. Analysis finds that dire economic conditions may lead to increased competition, increased competition may lead to increased risk taking, increased risk taking may have an impact on a bank’s financial performance, and decreased financial performance may lead to increase in misconduct.

Keywords: banking competition, banking behavior, economic conditions.
JEL Classification: C21, G01, G21, G32

This paper presents the recommendations for selecting a kind of financial innovation in a bank based on the results of theoretical research regarding its usage as a tool for ensuring bank financial soundness. The study is aimed at developing an approach to selecting a kind of financial innovation depending on the level of bank financial soundness and the stage of bank life cycle. The existing method of identifying a bank’s life cycle stage in the framework of the developed approach was improved: it was offered to use the criteria of the growth rates of a bank’s market share, total income, staff costs and net cash flow for grouping banks by the stage of their life cycle and conduct two-steps clustering which helps to determine those banks which are on the transitional stages and to refer a bank to a similar group (growth, stabilization and decline). The empirical results of its implementation suggest that there are three groups of Ukrainian banks that vary according to the stage of bank life cycle (growth, stabilization, decline), excepting those institutions which are on the transitional stages. By the example of banks which represent the main characteristics of each cluster, the authors recommend to launch particular kinds of financial innovation in bank operating activity, taking into account the peculiarities of each group. The empirical results confirm the relevance of the developed approach and its value for identifying the current phase of a bank’s development and managing its financial soundness.

Keywords: bank financial soundness, bank life cycle stage, cluster analysis, discriminant analysis, Ukraine.
JEL Classification: G21, D91

The objective of this study is to determine the perception and awareness of Islamic banking by a conventional banks sales force. This was a cross-sectional study conducted among 100 sales staff randomly selected to take part in the study. A self-administered anonymous questionnaire was used to collect the data using online system called QuestionPro. Results revealed that whilst the respondents did feel there was a need for Islamic banking, they also did feel that Islamic banking was more complicated than conventional banking. The study also revealed that there was an overall negative perception of Islamic banking which was primarily based on a lack of knowledge, awareness, and understanding. It is recommended that banks provide sufficient and effective training to their staff on all products and services so that any negative perception can be eliminated. This study can benefit organizations that are in the Islamic banking industry or looking at getting into the Islamic banking industry.

Keywords: Islamic banking, conventional banking, knowledge, perception, training.
JEL Classification: G21, D83

The urgency of the issue is due to the change of major banks functioning conditions in accordance with permanent risks, that global financial instability bears, fiscal and monetary regulation enforcement on national financial markets and from the side of supernational institutions of global financial market regulation. The aim of the paper is the research of overall efficiency of the major banks in the global financial instability. The comparative analysis of overall and individual meanings of bank products and services (earnings) sales values, net profit, assets volume, market value of major banks in researched years gave the possibility to find the tendencies of banks development taking into account global financial instability influence and institutional and regulatory foundations of national governments implementation, Financial stability council (created in Ukraine) and Basel Committee on Banking Supervision. The conditions of major global banks functioning are changing under the influence of financial supervision and institutional and regulatory requirements enforcement to banks activity financial parameters. Other factor that provokes global banks towards activity strategy change is the growth of competition both in bank sphere and non-banking institutions in connection to possibilities provided by financial innovations. The directions of further researches lie in global banking effectiveness finding in a whole from the point of view of not separate banks, or group of banks, but global banking system, which, to our mind, has already been formed.

Keywords: global financial instability, effectiveness, major banks, global banking, bank efficiency.
JEL Classification: F33, Е58, G21

This study investigated the extent to which banks in South Africa report on remuneration and incentives according to the Global Reporting Initiative (GRI) guidelines. The study was done by examining the annual integrated reports of eight commercial banks listed on the Johannesburg Stock Exchange. Content analysis was used as the research method in this empirical study. There was, on average, 75% compliance to G4-51 a, the standard concerning remuneration policies by the integrated reports studied and 69% compliance to G4-52 a, the standard concerning the process for determining remuneration. There was a very low degree of compliance to standard G-53 a and standard G4-55 a, which concern how stakeholders’ views are sought and taken into account regarding remuneration and the ratios regarding compensation, respectively. Two of the standards had no compliance at all. They are G4-51 b and G4-54 a that respectively, concerns how the performance criteria in the remuneration policy relate to the highest governance bodies’ and senior executives’ economic, environmental and social objectives and the ratio of the annual total compensation for the organization’s highest-paid individual in each country of significant operations to the median annual total compensation for all employees. These are two of the most important standards in order to reach the objective of social responsibility reporting with regards to remuneration and that serious consideration must be given as to why there is no compliance. Based on the findings from this study, it is found that social reporting by the banks listed on the JSE with regards to remuneration, as indicated by the GRI G4, are relatively poor.

Keywords: sustainability reporting, sustainable development, global reporting initiative, integrated reporting; remuneration and incentives, corporate social responsibility, banking industry, South Africa.
JEL Classification: M14, N2, N27, M52

This study presents empirical evidence on the impact of monetary policy transparency on inflation. A lot of studies analyzed how monetary policy transparency is entangled with inflation level from a theoretical point of view and came to contradictory results (some studies argued that transparency leads to lower inflation, others concluded that transparency results in higher prices). But this study is different from prior studies. Firstly, it looks at investigated issue empirically. Secondly, it considers for other causes of inflation and employs a panel data set on central bank transparency. Thirdly this paper investigates the issue associated with transparency in Ukraine. The authors find that transparency significantly reduces inflation rates in developed countries, but it is positively associated with inflation in Ukraine.

Keywords: central bank, monetary policy transparency, information disclosure, inflation.
JEL Classification: E52, E58, E59

The primary aim of this study is to investigate commercial banks employee’s interactions in the advent and eminence of social media, thus, depict the major influence which is made by social media in two commercial banks (ABSA and Standard Bank) workflow. This study has employed a quantitative research approach whereby structured questionnaires were distributed respectively to two commercial banks’ employees. A self-developed and administered questionnaire was distributed to a population size of 194 employees with 102 returned and completed successfully, thereby generating a response rate of 53%. Findings in this study revealed the extent to which social media has changed workflow in commercial banks (54% agree, 23% were undecided, and 24% disagreed). Among other major findings that this study reflected, social media among commercial banks employees’ has totally transformed channels of communication (60% agreed, 25% were undecided, and 24% disagreed). Despite the positive advancements revealed in this study, social media has not allowed openness of emotions among commercial banks employees’ (49% agreed, 28% were undecided, and 24% disagreed). This study is expected to contribute to the body of knowledge, as there is a paucity of published studies on commercial banks employee’s interactions in the advent of social media. This study will also help the bank managers to intensify online team management and supervision.

Keywords: collaboration, communications, employees’ emotions, human interaction, supervision, team management.
JEL Classification: G21, M30, M54

The basic tendencies and problems of banking crediting of enterprises’ innovation activity have been researched. The main directions in enterprises’ financing framework as banking crediting have been analyzed. The factors that influence the level of bank support of enterprises that overcome innovation activity and actively implement innovations have been researched. The banking crediting is proved to be meant to become one of the most important sources of financing of investment programs and projects, directly connected with improvement and development of the most important branches of economy.

Keywords: bank, innovations, innovation activity, enterprises’ financial resources, crediting.
JEL Classification: G24