Loan restructuring as a banking solution in the COVID-19 pandemic: Based on contingency theory

In this research, the authors proposed a new method to evaluate borrowers’ credit risk and quality of financial statements information provided. They use qualitative and quantitative criteria to measure the quality and the reliability of its credit customers. Under this statement, the authors evaluate 35 features that are empirically utilized for forecasting the borrowers’ credit behavior of a Greek Bank. These features are initially selected according to universally accepted criteria. A set of historical data was collected and an extensive data analysis is performed by using non parametric models. Our analysis revealed that building simplified model by using only three out of the thirty five initially selected features one can achieve the same or slightly better forecasting accuracy when compared to the one achieved by the model uses all the initial features. Also, experimentally verified claim that universally accepted criteria can’t be globally used to achieve optimal results is discussed.

VUСA is a chaotic and rapidly changing business environment that, based on the variability, uncertainty, complexity and ambiguity of the modern world, transforms the approach of banks to the analysis of financial stability. The aim of the paper is to improve tools for monitoring the impact of VUCA-world conditions on the financial stability of banks, namely a model for studying and analyzing the impact of the modern business space “VUCA” on the financial stability of the country's banks. To test the model, the method of constructing regression equations in multifactor regression analysis is used. For this study, data from some Eastern European countries (Ukraine, Belarus, Latvia, Lithuania, Moldova) were used, and time series data were used for 10 years from 2010 to 2019.
Having considered the definition of “VUCA-world conditions”, the model of modern business space “VUCA” was developed when analyzing the activity of banks in the studied countries. Drivers, consequences, requirements and macroeconomic indicators of the countries’ activities in the VUСA-world conditions are determined. The VUCA-world conditions also consider the study of key macroeconomic indicators that allow building long-term relationships throughout the value chain. The analysis of the studied Eastern European countries showed that with the increase of factors of GDP growth, GNI per capita growth, research and development costs, foreign direct investment, and net inflow of 1%, the effective ratio of bank capital and assets also increases. The assessment, in contrast to the existing ones, makes it possible to consider the impact of the macroeconomic environment of banks on their financial stability.

This paper sheds light on the financial crisis of 2008–2010 in eleven emerging Eastern European economies (EE11): Armenia, Azerbaijan, Belarus, Bulgaria, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Romania, Tajikistan and Ukraine. The aim is twofold. In the first place it seeks to find out if the financial instability hypothesis, as put forward by Minsky and Kindleberger, is a valid explanatory factor for the crisis. Secondly, it tries to map if general institutional frameworks of these countries were developed in order to stand against the factors leading into the financial crisis.
To answer these research problems the paper maps cycles of three parameters representing the real economy, i.e. gross domestic product, manufacturing output and unemployment and four parameters representing the financial markets, i.e. money supply, credit volumes, inflation and government debt. The cycle approach is carried out with the help of a structural time series analysis to isolate cycles in time series. The paper concludes that there were substantial positive financial cycles previous to the financial crisis mirrored by similar cycles in the real economy.
Similarly, the results show negative cycles in the same parameters during the years of crisis. It seems that an uncontrolled increase in money and credit caused the economy to overheat and thereafter contract into financial and real economy crises.
Also, the paper compiles twelve different indices of institutional development. These are standardized and presented in an institutional development matrix, showing that the general institutional framework for the eleven economies was weak previous to and under the meltdown of the economies.
The construction of an integrated institutional development index on the basis of the same twelve parameters confirms institutional shortcomings, which may have made the economies less able to guard themselves from a crisis initiated by both domestically and internationally financial instability.