Liquidity and solvency as factors of competitiveness of the Bank

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Банковское, биржевое дело и страхование


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Liquidity and solvency as factors of competitiveness of the Bank

Abstract. The paper suggested specific proposals for determining the liquidity and solvency as factors of sustainable competitive position of banks during the crisis and developed approaches to improve the management mechanism of bank liquidity.

Keywords: liquidity, solvency, banking, commercial banks' competitiveness.

Introduction. Dynamic development banking, increasing the degree of integration of the banking sector of Ukraine in the international financial community, empowerment of modern financial markets, increasing range of banking products actualize research questions devoted to the competitiveness of modern banks.

Today, given the instability of the macroeconomic environment, inadequate legal framework, the volatility of the financial market price parameters and negative effects of the global financial crisis, deserve special attention problems analyzing the liquidity and solvency of commercial banks as factors of competitiveness.
Study the problems of bank liquidity subject of many scientific publications, however, in spite of considerable progress, some aspects still remain unclear and require further study. The current economic situation shows that, besides purely theoretical, this perspective also has practical value.

Issues of market competition in the economic literature worked fairly well, but the problem of banking competition is much less investigated. The least processed include practical and theoretical and methodological problems of competitiveness management of banks.

The subject of the article — the liquidity and solvency of commercial banks Plight of indicators that enable them to evaluate.

The object of analysis — the activity of domestic commercial banks to maintain liquidity and competitiveness.

Problem. The purpose of the article is that on the basis of theoretical information to develop concrete proposals and ways of improving approaches to determining the solvency and liquidity of the bank as a factor of sustainable competitive position in the crisis period.

According to the goals of the task are:

¦ analysis of existing theoretical development and refinement of the economic substance of the competitiveness of banks;

¦ determine the factors that affect the competitiveness of banks;

¦ study the nature of bank liquidity and its relationship with the concept of «solvency» of the bank;

¦ addressing key aspects of bank liquidity;

¦ analysis of commercial banks in Ukraine compliance with regulations of the NBU;

¦ analysis of liquidity Ukraine based on the traditional approach — the method of coefficients.

Results. At the beginning of the XXI century. Banking competition is one of the central problems of national economics and banking practices, which necessitates a comprehensive study and creation of modern management mechanism competitiveness as an important process of banking.

Competitiveness in general is defined as the real and potential firms in existing conditions to design, produce and sell products that are of price and non-price characteristics more attractive to consumers than the products of their competitors.

The competitiveness of the Bank’s ability to effectively economic activity and its practical realization of profit in a competitive banking market.

The competitiveness of the bank reflects the degree of attractiveness of the bank to actual and potential customers that you can get certain advantages in shaping effect on the market situation for their own benefit.

It should be noted that almost all researchers propose two basic criteria for assessing the competitive position of banks: profit and general subjective opinion of customers, which is a reflection of the market share of deposits (less loans) held by the bank at the moment.

The literature can be reached on the approach of evaluating the competitiveness of the bank in accordance with the theory of competitive advantages M. Porter, as part of a group of banks. This basic principle of a system of indicators of competitiveness bank should be a mix of current results of competitive activity institution of its capability to create long-term value. Indicators that satisfy this requirement into three groups: market, operational and financial.

The level of competitiveness of the bank at any given time is determined by the influence of related factors that can be grouped into two broad categories: external (market size, ease of market access, market homogeneity, the competitive position of banks already operating in this market, the possibility of technical innovation in the industry, the competitiveness of the region and country, etc.) and internal (current Bank strategy development, diversity and quality services expertise and reputation bank size and capital adequacy, compliance with regulations of the NBU, the presence of concentrations of the structure, stability and growth of the deposit base; volume and value of bank loans, bank financial dependence on external sources, the share of highly funds in the amount of net assets of the bank management skills, etc.).

Some scholars believe that the massive bank failures crucial role to exogenous factors. Others argue that it is the factors of the internal environment of the bank’s most significant, as is the subject of active influence on his part.

In our opinion, oppose exogenous and endogenous factors influencing the banks inappropriate and wrong. Indeed, stable macroeconomic conditions and the same performance of the banks is very different, due to internal factors. But if the macroeconomic situation in the country is unstable, it is unlikely that entities can improve their situation by enhancing the internal environment factors.

The current state of the banking system of Ukraine and forecasts for the near future are forced to understand the relevance of this characteristic of the banking organization, as its liquidity.

We believe that in a crisis, when the government carried out under conditions of uncertainty and changing competitive environment, namely the liquidity and solvency of banking institutions should be the main focus competitiveness.

No doubt the close relationship between the competitive position of the bank and the state of its liquidity. For domestic banks to ensure sufficient liquid funds under conditions maintaining an acceptable level of profitability — not only the criterion of competitiveness, but also a condition of survival in the market.

Significant impact on the liquidity and solvency of banks on the competitiveness shown by numerous marketing researches, on which you can quite confidently be noted that the solvency and liquidity of today — one of the main features that determine the reliability, and hence the competitiveness of the bank.

The concept of bank liquidity is quite multifaceted, and its interpretation in the economic literature and in practice are ambiguous nature.

The term «liquidity» describes the ease of conversion of property into cash. Regarding the banking sector the term «likviditet» was borrowed from German in the early XX century. [10].

Terminology definitions bank liquidity analysis shows that the most common interpretation of it — the bank’s ability to timely and fully perform its obligations [5].
In the current regulatory framework liquidity of the bank is treated as its ability to ensure the timely execution of liabilities, which is determined by the balance between the terms and amounts of assets and rozmishenyh repayment terms and amounts of the obligations and the timing and amounts of other sources and uses of funds [2 ].

In the domestic banking practice bank liquidity is associated primarily with the performance of obligations under liabilities.

In international banking had a slightly different understanding of liquidity. It is interpreted as the ability to meet any emergency needs of the bank in cash, which arise not only in the performance of obligations for the liabilities, but also because of active operations [8]. That is now gaining approach suggests that liquidity risk arises not only because of the imbalance of assets and liabilities by maturity, but also due to lack of ability to meet the needs of customers in lending. [4] In particular, Mr. Rose said that the bank is illiquid if it has access to funds that can be mobilized at the right price and at the very moment when they are needed [9].

We believe that the interpretation of bank liquidity should be complemented by the ability of the bank to make loans and guarantees and to carry out investment transactions that meet the strategy of the banking institution. This is because if the bank in case of lack of liquidity may not meet all loan requests, he, at first, lost income from credit operations and, secondly, the risk of losing the client, which also causes a loss of income [4, 10].

Bank liquidity plays a vital role in the activities of individual banks and the financial system of the state. Illiquid bank can not perform its functions and conduct operations with customer service, its rating is reduced, which greatly complicates borrowing from external sources, the bank loses potential profits. Therefore, solving the problems of liquidity should have the highest priority in the bank, and to maintain adequate liquidity — an indispensable condition of survival of each bank.

The term «liquidity» is closely related to the concept of «ability to pay».

The term «solvency» is meant not only to convert assets in such a rapidly implemented, but also the capacity of a legal entity to meet its obligations in full. Because liquidity is seen as a necessary prerequisite solvency and [10].

Solvency commercial bank — the actual ability of commercial banks to meet all their financial obligations in strict compliance with contractual obligations to its customers and contractors within the prescribed period. [7]

According to the Law of Ukraine «On Banks and Banking» insolvent bank — a bank’s failure to timely and fully meet the legitimate claims of creditors due to lack of funds or reduce the size of the bank’s capital to an amount which is less than one-third of the minimum regulatory capital [1].

We can say that in ensuring the stability of the commercial bank liquidity primary, solvency — secondary [7].

Managing bank liquidity in the context of the competitiveness of the bank should be seen as a continuous multistage process is a set of approaches and methods by which achieved the optimal balance between assets and liabilities for amounts and terms, allowing the bank to limit liquidity risk and achieve maximize profitability under conditions of non-observance of liquidity ratios [10].

The National Bank of Ukraine set for all commercial banks liquidity ratios designed to analyze their ability to fulfill its obligations, and dynamics — to assess trends in bank liquidity.

The first stage of analysis of liquidity — to identify how banks comply with regulations of the NBU. Analyzing statistical data, one can conclude that during 2002−2009, Ukraine banks strictly adhered to standards set by the NBU. So the question arises: why did the banking system of Ukraine a liquidity crisis and on the verge of bankruptcy appeared multiple banks?

In the process of analyzing and managing bank liquidity than NBU regulations, use and other factors.

The use of indicators helps to thoroughly analyze the needs and liquidity, as well as accurately assess liquidity risk of the bank. Having developed a detailed system of interbank liquidity, management will be able to monitor operational data and to plan activities to specific transactions of a particular bank.

Liquidity ratios are established based on the experience gained and specific economic conditions in the country. compliance with them — a necessary condition for the normal activities of the bank, but should not be treated as indisputable evidence of effective management of liquidity and highly competitive basis, because can not solve a wide range of issues related to the liquidity of banks [3, 6].

We perform the calculation of liquidity to troubled banks «Kyiv» and «Rodovidbank» and compare them with those of financially sustainable «Privat». Information base for calculation is the bank balance for three reporting date — 01. 01. 2008, 01. 01. 2009 and 01. 10. 2009.

Made calculations indicate a significant deterioration of liquidity all three banks during 2008 in particular, banks «Kyiv» and «Rodovidbank» declined immediate, total and general liquidity commitments. Odds instant liquidity and liquidity resource commitments «Privat» better than similar rates of banks «Kyiv» and «Family tree bank», but also not high.

Index of instant liquidity at the end of III quarter 2009 follows a bank «Kyiv».

An interesting indicator is the ratio of loans and deposits. All three banks surveyed in 2008 reporting year it increased significantly (from banks «Kyiv», «Rodovidbank» and «Privat» at 32. 67%, 30. 83% and 16.4 9%), and this suggests deterioration of their liquidity. In this regard, effectively acted «Privat», which not only increased the amount of loans, but also increased the amount of borrowed funds. During the first 9 months of 2009, no bank «Kyiv» or «Rodovidbank» failed to remedy the situation, and this figure still they remain unacceptably high (256 and 332%, respectively).

In general, it should be noted that liquidity «Privat» is better than the other two banks.

Analysis of the ratios of liquidity — the simplest approach, but its main drawback is the static evaluation of liquidity. In addition, we believe this method is quite subjective. In fact, the liquidity of the bank is determined by the market and is influenced by numerous factors, taking full account of them in practice hardly possible

Conclusions. The study found that Ukraine’s current evaluation system liquidity through a number of indicators contains inconsistencies and significantly different from the leading countries of the world.

Ukraine applies the approach adopted in Germany, France and many other European countries, but national methodology has certain characteristics and methodological inconsistencies and require amendments of the world experience.

You can offer to increase the normative values of the current ratio of 40 to 70% as the average value of the ratio of the banking system during 2003−2009 pp. amounted to 69. 7%.

For effective surveillance of liquidity and solvency of banks, the timely detection of adverse trends and prevent their spread, we believe that the central bank should introduce additional liquidity ratio, which would be characterized long-term liquidity. Indicator of long-term liquidity is determined by dividing the amount of assets available to the original location and liabilities with a maturity of over one year. Recommended value can be set at the level of 50−60%.

The need for long-term liquidity ratio of input due to the growing gap between the timing of assets and liabilities and may be one of the ways to improve regulation of bank liquidity.

Proposed changes we will timely control of the Bank as the liquidity of commercial banks, the adoption of appropriate management decisions and more effective working of the banking system

As a result, it should be noted that the rational management of liquidity and solvency of commercial banks, the correct calculation and interpretation of indicators — a guarantee of maintaining a positive image of the bank nevtraty confidence of the investors and as a result, a bank maximum profits.


banking international financial community

1. The Law of Ukraine «On Banks and Banking Activity» № 2121-III dated December 7, 2000 / / Supreme Council. — 2001. — № 5−6, art. 30.

2. Resolution of the National Bank of Ukraine № 368 from 28. 08. 2001. «On approval of the Instruction on regulation of banks in Ukraine» was registered in the Ministry of Justice of Ukraine on September 26, 2001, № 841/6032

3. A. Gerasimov, Alekseienko MD, Persia, Vehrunenko I. Analysis Banking: Tutorial. — Kyiv: Kyiv National Economic University, 2003. — 599 p.

4. Ivasiv I. Liquidity Bank in marketing management / / Finance Ukraine. — 2003. — № 1. — S. 109−115.

5. Claus AM, Savluk MI, MF Puhovkina Banking transactions: a textbook. — For the Society. yet. A. Frost. — 3rd ed., Revised. and add. — K.: MBK. — 2008. — 608 p.

6. Narizhnaya N. Organization of liquidity risk management in banking institutions / / Formation of market relations in Ukraine: Coll. Science works. — 2008. — № 5. — S. 65−70.

7. Pereshybkin M. liquidity and solvency of commercial banks: Author. dis … candidate. Econ. sciences: 08. 04. 01 / specialty. Nat. Un-named. VNKarazina. — X., 2002. — 18 p. (RUS).

8. Prymostka LO analysis of banking: current concepts, methods and models: a monograph. — Kyiv: Kyiv National Economic University, 2002. -316 P.

9. Rose PS by the bank management / Per. s English. — Moscow: Delo Ltd, 1995. — 768 with.

10. Khimich N. liquidity management of commercial banks in Ukraine in terms of instability of financial markets / / Regional Economy. — 2008. — № 3. — S. 76−83.

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