Development of a methodology for assessing systemically important Ukrainian banks and a Z-score
-
Author(s)Oleksandra HirnaLink to ORCID Index: http://orcid.org/0000-0002-1645-589X
,
Vira DruhovaLink to ORCID Index: http://orcid.org/0000-0001-9826-3201
,
Lidiia DudynetsLink to ORCID Index: http://orcid.org/0000-0003-2800-2780
,
Olha VerneiLink to ORCID Index: http://orcid.org/0000-0002-2559-4867
,
Dariusz WawrzyniakLink to ORCID Index: https://orcid.org/0000-0002-0896-6171
-
DOIhttp://dx.doi.org/10.21511/bbs.15(2).2020.20
-
Article InfoVolume 15 2020, Issue #2, pp. 230-242
- 724 Views
-
150 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The indicator-based method recommended by the Basel Committee is one of the most common approaches to identifying systemically important banks. National authorities often establish their own methodology by adding modern tools that, in their opinion, adequately capture systemic risk in their domestic economy.
The paper shows that the updated methodology for assessing systemically important Ukrainian banks can be verified on publicly available data. The analysis confirms that the updated version of the National Bank’s assessment methodology is in line with those recommended by international banking institutions, but does not fully capture the current systemic risk factors.
Systematization of literary and statistical sources indicates that one of the main sources of systemic risk in Ukraine is the establishment of a state monopoly in the banking market. Thus, the assessment methodology should be supplemented by instruments to evaluate the performance of the banking business. The indicator-based method and the minus one bank Z-score approach were tested to identify Ukrainian systemically important banks from 2010 to 2017.
The loss of the leading role of PrivatBank in ensuring banking stability after the transition to state ownership since 2016, as well as the equalization of the systemic risk contribution of banks with state, foreign and domestic capital, was discovered. The study empirically confirms that Z-index, which combines the positive characteristics of the static asset return ratio and bankruptcy probability, can be used to determine the methodology as an indicator of the performance of systemically important banks, primarily state-owned banks.
- Keywords
-
JEL Classification (Paper profile tab)E58, G18, G21, C10
-
References27
-
Tables5
-
Figures3
-
- Figure 1. Return on assets over the period of 2010–2017
- Figure 2. Trends in aggregated Z-scores and minus one bank Z-scores for Ukrainian banks, calculated using Approach 1
- Figure 3. Trends in aggregated Z-scores and minus one bank Z-scores for Ukrainian banks, calculated using Approach 2
-
- Table 1. Modifying tools in an assessment methodology for identifying D-SIBs
- Table 2. Comparison of Basel Committee’s D-SIB and 2014 and 2019 revised versions of the NBU’s assessment methodologies
- Table 3. Indicators and corresponding proxies to test the NBU assessment methodology
- Table 4. Testing results of the NBU assessment methodology (as of January 1, 2019)
- Table 5. Aggregated Z-scores and minus one bank Z-scores for Ukrainian banks for 2015–2017
-
- Basel Committee on Banking Supervision (BCBS). (2011). Global systemically important banks: assessment methodology and the additional loss absorbency requirement.
- Basel Committee on Banking Supervision (BCBS). (2012). A framework for dealing with domestic systemically important banks. Bank for International Settlements.
- Basel Committee on Banking Supervision (BCBS). (2013). Global systemically important banks: updated assessment methodology and the higher loss absorbency requirement. Bank for International Settlements.
- Basel Committee on Banking Supervision (BCBS). (2018). Global systemically important banks: revised assessment methodology and the higher loss absorbency requirement. Bank for International Settlements.
- Bengtsson, E., Holmberg, U., & Jonsson, K. (2013). Identifying systemically important banks in Sweden – what do quantitative indicators tell us? Sveriges Riksbank Economic Review, 2, 27.
- Bisias, D., Flood, M., Lo, A. W., & Valavanis, S. (2012). A Survey of Systemic Risk Analytics. Annual Review of Financial Economics, 4, 255-296.
- Bura, V. I. (2019). Rehuliuvannia ta nahliad za systemno vazhlyvymy bankamy [Regulating and overseeing systemically important banks] (Ph.D. Thesis). (in Ukrainian).
- Buriak, A., Lyeonov, S., & Vasylieva, T. (2015). Systemically important domestic banks: an indicator-based measurement approach for the Ukrainian banking system. Prague Economic Papers, 24(6), 715-728.
- Druhov, O., Druhova, V., & Pakhnenko, O. (2019). The Influence of Financial Innovations on EU Countries Banking Systems Development. Marketing and Management of Innovations, 3, 167-177.
- European Banking Authority (EBA). (2014). Guidelines on criteria for the assessment of other systemically important institutions.
- Ferrari, A., Mare, D. S., & Skamnelos, I. (2017). State Ownership of Financial Institutions in Europe and Central Asia (Policy Research Working Paper No. WPS 8288). World Bank Group.
- Heorhiadi, N., Druhov, O., Vilhutska, O., Bets, M., Stoianovskyi, A., & Folwarski, M. (2018) Organizational development in banks management systems. Banks and Bank Systems, 13(3), 1-11.
- Igan, D., Moussawi, H., Tieman, A. F., Zdzienicka, A., Dell’Ariccia, G., & Mauro, P. (2019). The Long Shadow of the Global Financial Crisis: Public Interventions in the Financial Sector (IMF Working Papers No. 19/164). International Monetary Fund.
- Kornyliuk, R., & Kornyliuk, A. (2018). Ukrainian Banks’ Business Models under Systemic Risk. CEUR Workshop Proceedings, 2105, 124-138.
- La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2000). Government ownership of banks (NBER Working Paper No. 7620). Massachusetts: National bureau of economic research.
- Lavreniuk, V. V. (2016). Systemno vazhlyvi banky ta yikh vplyv na stabilnist bankivskoi systemy [Systemically important banks and their impact on the stability of the banking system] (Ph.D. Thesis). Kyiv: KNEU. (In Ukrainian).
- Lesyk, V. O. (2018). Monitorynh finansovoi stabilnosti bankivskoi systemy [Monitoring of financial stability of the banking system] (Ph.D. Thesis). Kyiv: KNEU. (In Ukrainian).
- Li, X. (2018) An Examination on Bank Risk Measures and their Relationship to Systemic Risk Measurement (Doctoral Thesis). Massey University Doctoral Thesis Upload.
- Li, X., Tripe, D., & Malone, C. (2017). Measuring bank risk: An exploration of Z-score. SSRN.
- Malakhova, O. L., & Klimovych, R. A. (2018). Identification of systemically important banks as the basis for stability of the banking system. Market Infrastructure, 24, 348-358. (In Ukrainian).
- NBU. (2020). Strategy for the development of the Ukrainian financial sector until 2025.
- NBU. (25.12.2014). Pro zatverdzhennia Polozhennia pro poriadok vyznachennia systemno vazhlyvykh bankiv [On approval of the Regulations on the procedure for determining systemically important banks] (Postanova Pravlinnia Natsionalnoho banku Ukrainy No. 863).
- NBU. (27.06.2019). Pro vyznachennia systemno vazhlyvykh bankiv [On the definition of systemically important banks] (Rishennia Pravlinnia Natsionalnoho banku Ukrainy No. 438-rsh).
- Onyschenko, Yu. I., & Rimko, O. (2016). Pidkhody do vyznaсhennia systemnykh bankiv v natsionalnykh bankivskykh systemakh [Approaches to the definition of system banks in national banking systems]. Economics Studies, 2(10), 129-134. (In Ukrainian).
- Saffar, W., & Boubakri, N. (2017). Government Ownership and Debt Choice: Evidence from Privatization.
- Shulha, N. P., & Kolodizieva, S. O. (2016). Identyfikatsiia systemno vazhlyvyh bankiv [Identification of systemically important banks]. Herald of KNUTE, 5, 82-98. (In Ukrainian).
- Zherdetska, L. (2017) Systemno vazhlyvi banky: problemy identyfikatsii ta rehuliuvannia [Systemically important banks: problems of identification and regulation]. Economic Bulletin of Zaporizhzhia State Academy, 6(12), 62-66. (In Ukrainian).
-
Positive contribution of the good corporate governance rating to stability and performance: evidence from Indonesia
RR. Iramani , Muazaroh Muazaroh , Abdul Mongid
doi: http://dx.doi.org/10.21511/ppm.16(2).2018.01
Problems and Perspectives in Management Volume 16, 2018 Issue #2 pp. 1-11 Views: 3155 Downloads: 308 TO CITE АНОТАЦІЯThis paper aims to examine the impact of Good Corporate Governance (GCG) practice on bank stability and performance. Governance is measured using the GCG rating that covers eleven aspects. The authors apply instrumental regression to link governance to performance and stability. The study covers a sample of 150 banks. The result shows that bank stability can mediate bank governance and bank performance. On the determinant of bank performance, it can be concluded that the GCG rating is positive and directly influences bank performance. Bank stability is also positive for bank performance indicating the indirect contribution of the GCG rating to bank performance. NPL, LDR, CAR and bank’s size (LASSET) are all negative and significant. The aim of this paper is to provide strong empirical evidence on the importance of governance and stability for performance. The limitations of this paper are the size of the sample and that it only covers public banks which are theoretically required to apply better governance in all aspects of their business by the Capital Market Authority.
-
Ownership structure and bank performance
Hamdi Agustin , Sri Indrastuti , Amris Rusli Tanjung , Muhammad Said
doi: http://dx.doi.org/10.21511/bbs.13(1).2018.08
Banks and Bank Systems Volume 13, 2018 Issue #1 pp. 80-87 Views: 1904 Downloads: 504 TO CITE АНОТАЦІЯThe purpose of this study is to evaluate the performance of banks in Indonesia. Specifically, this study has examined the static effect of ownership structure on bank performance in Indonesia over the period 1995–2006. The sample consists of 74 banks, namely 56 private banks, 15 community development banks (BPD), and three federal banks from 1995 to 2006. The data was analyzed using least-squares regression method, the general least squares method, and the method of random effects. The findings of this study show that the BPD performed better compared to private banks. This indicates that BPDs have better performance rather than private banks which is due to the fact that customers can be able to pay loans, they have special knowledge on that area and the performance of BPD is supervised by local government. In addition, the amount of equity, economic growth, financial crisis, and the financial ratios affect the performance of the bank. However, bank status has no effect on bank performance.
-
The impact of oil price crisis on financial performance of commercial banks in Bahrain
Iqbal Thonse Hawaldar ,
Babitha Rohit ,
Prakash Pinto ,
Rajesha T. M.
doi: http://dx.doi.org/10.21511/bbs.12(4).2017.01
Banks and Bank Systems Volume 12, 2017 Issue #4 pp. 4-16 Views: 1888 Downloads: 428 TO CITE АНОТАЦІЯOil export is the major source of revenue for the countries in the Middle East. Their economies are sensitive to fluctuations in oil prices. The present study examines the impact of oil crisis on the performance of selected banks of Kingdom of Bahrain using profitability, efficiency, capital adequacy and liquidity ratios in the pre-crisis and crisis periods. The study reveals that there is no significant difference in the performance of banks in the pre-crisis and crisis period. The results indicate that there is a significant difference in the performance of conventional banks and Islamic banks in the pre-crisis period. However, there is no significant difference in the performance of conventional banks and Islamic banks during the crisis period.
