ОЦІНКА СТІЙКОСТІ УКРАЇНСЬКИХ БАНКІВ

This thesis investigates three comprehensive research issues in the context of five selected Association of Southeast Asian Nations (ASEAN) banking markets (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) during the period 1998-2010. This study is motivated by the extensive restructuring efforts that took place in the aftermath of the Asian Financial Crisis (AFC) which has shaped the banking behaviour in ASEAN countries to enable them to sustain their financial systems’ stability. As a result of the crisis, banks adopted several strategies in response to various structural and policy changes and, therefore, there were vast effects on banks’ behaviour following the AFC and pre and post the Global Financial Crisis (GFC) period. The first empirical study of this thesis investigates the impact of market power on credit risk, revenue diversification and bank stability. The findings suggest that bank market power is positively associated with credit risk and revenue diversification. Nevertheless, these associations diminished during the GFC, implying that banks with greater market power were able to better manage their non-performing loans during the crisis period. Bank stability, however, is not associated with market power. Instead, it is found to be a negative function of state-ownership, asset composition and banking freedom. Overall, even though ASEAN banks with greater market power have higher credit risk, they are more diversified thus leaving their overall bank risk unaffected. The second empirical study examines the association between net interest margin, revenue diversification and risk-adjusted profitability. The findings suggest a two-way association between net interest margin and revenue diversification. The results denote a significant inverse relationship in the period 1998-2002, indicating subsidisation between interest and fee-generating business in the aftermath of the crisis. For the latter part of the sample (2003-2010), a positive association has been reported for net interest margin and revenue diversification implying that non-interest income does not necessarily increase with the detriment of the net interest margin. The findings reveal that diversification benefits exist for the same sub-sample period i.e. after the Basel II regulations came into force around 2003. The results also suggest that in the aftermath of both crises, risk adjusted profitability declined as banks had limited scope to diversify their sources of revenue. Overall, ASEAN banks have evolved over time, moving from the worsening risk-return trade-off to the beginnings of the benefits of diversification. The third empirical study investigates the influence of the cost of deposits, market power and the business cycle on the bank capital buffer determination. The findings imply that the capital buffer is positively associated with the cost of deposits, bank market power and the business cycle. The findings indicate that the higher the cost of deposits and the greater their market power, banks tend to hold a greater capital buffer. Furthermore, the capital buffer can vary pro-cyclically with the business cycle suggesting that banks can increase their capital buffers by expanding through various lending during economic upturns which will provide opportunities for banks to make use of this excess capital during recessions. Further, the findings suggest that the banking sector can contribute to the performance of the economy if they hold sufficient buffers and retain a healthy flow of credit when the economy is in crisis. This analysis provides some insight into ASEAN banks’ response to Basel III, which indicates that these banks will find it much harder to comply with the new regulations. This study contributes to the literature through providing evidence of the ASEAN banks’ diverse responses in the aftermath of the AFC and pre- and post-GFC with regard to the research issues. In addition, this thesis adds to the limited, but fast growing, literature on bank market power by using an improved version of the Lerner index in the form of a Funding adjusted Lerner index. Regarding the methodology, unlike other studies, this thesis extends the literature by addressing endogeneity by employing the GMM method for estimation. In addition, this thesis is includes a broader set of bank-specific, country-specific and industry-specific determinants together to address the research issues. Apart from the academic contributions, this thesis offers several implications for bankers, shareholders and regulators. The regional focus of the analysis provides useful insights for ASEAN banks for future policy formulation involving bank market power, credit risk, revenue diversification, bank stability, net interest margin, cost of deposits and the business cycle, given the restructured banking system in the region.

This paper examines the impact of ESG (Environmental, Social, and Governance) factors on the stability of banks across different continents, focusing on both conventional and Islamic banking institutions. The empirical analysis indicates a positive influence of ESG activities on the stability of these financial institutions. Notably, the study finds that ESG scores significantly enhance the stability of both conventional and Islamic banks. The environmental pillar score, especially within the conventional banking sector, shows highly positive and statistically significant results, highlighting the benefits of environmentally responsible practices. In contrast, the social pillar is positively correlated with stability in the Islamic banking sector, suggesting that active involvement in community service and social responsibility initiatives leads to improved stability. Overall, the study emphasizes the transformative potential of ESG activities in enhancing the stability and valuation of banks by positively influencing both their external perception and internal operations.

The article is devoted to the problem of ensuring the financial stability of commercial banks as a key factor in the stability of the banking system and the economy as a whole. In this context, it is substantiated that in conditions of growing uncertainty and risks associated with global economic crises, stress testing becomes an important tool for assessing the ability of banks to withstand adverse conditions. An analysis of key aspects of methodological support for stress testing was carried out, including the development of scenarios, assessment of the impact of stress scenarios on the bank’s financial indicators, analysis of results and development of measures to improve financial stability. On this basis, a description of key aspects of ensuring the stress testing of the financial stability of a commercial bank is provided, their positive and negative features are highlighted. A scheme of methodological support for stress testing of the financial stability of a commercial bank is built, which includes such elements as: phased implementation of methodological techniques, tools and evaluation criteria for implementation. The criteria for assessing the methodological support for stress testing of the financial stability of a commercial bank are disclosed, which allow: to determine whether the capital reserve is sufficient to cover possible losses in the event of adverse scenarios; to assess the bank’s ability to timely fulfill its financial obligations under stress scenarios, and to determine whether the scenarios also indicate compliance with regulatory requirements, the timeliness of threat identification and the level of risk management effectiveness. It is substantiated that the formation of methodological support for stress testing of the financial stability of a commercial bank is an effective tool for ensuring the stability of the banking system and increasing the financial stability of banks. It provides a comprehensive approach to assessing the bank’s ability to withstand adverse conditions and developing measures to minimize risks.

This paper examines the influence of regulatory quality (RQ) on the link between foreign direct investment (FDI) and bank stability in Gulf Cooperation Council (GCC) countries. Through panel data analysis for 128 banks (Islamic and conventional) from the six GCC countries, the study reveals that FDI adversely affects bank stability of the GCC region; stability of Islamic banks shows a greater exposure to the adverse effect of FDI compared the stability of conventional banks. However, higher RQ weakens the adverse effects of FDI on the stability of banks in the GCC region. Islamic banks display a more significant role in allowing RQ to mitigate the detrimental effect of FDI on the stability of the overall banking system. This finding underscores the role of Islamic banks in stabilizing the GCC’s financial system. The study offers clear understandings for regulators, policymakers, and risk managers, emphasizing the need for careful regulatory quality management, particularly during increased foreign capital inflows to safeguard monetary and financial stability amidst FDI.

The impact of bank competition and concentration on bank risk-taking behavior and stability: Evidence from GCC countries

The period from 1946 until the early 1970s was a period of stability in banking in the UK and one in which there was a high degree ofcompliance with regulation. It stands in contrast to the period since the 1970s, which has been more prone to banking crises, most notably the global financial crisis of 2007-9. This research seeks better to understand and account for stability and compliance in banking by describing, exploring and explaining the regulatory, competition and institutional frameworks within which clearing banking operated in the period 1946-79. Initially, the thesis explores the regulatory framework for banks by setting out a detailed and systematic analysis ofthe forms and techniques of bank regulation. An analysis of this type does not exist in the literature. The thesis then evaluates the degree of concentration and competition in clearing banking. It questions aspects of the dominant view in the literature which sees stability as a consequence of a concentrated clearing banking system in which there was very limited competition. The third framework supporting stability and compliance in the banking system was the institutional framework. The institutional framework can be viewed as a set of constraints which had a normative dimension. It explores these constraints and demonstrates how they worked as counterweights to excessive risk-taking by banks. By the 1970s, the banking system was becoming less stable as these frameworks disintegrated or were dismantled, and in December 1973 a crisis of the secondary banks broke. Finally, drawing on a historical understanding of bank regulation in the period 1946-79 and a comparison with contemporary bank regulation, some guiding principles are suggested for regulatory policymakers and practitioners today. The methodology of the research is historical, based upon the analysis and evaluation of a broad range of published and unpublished records.

The article is devoted to the assessment of financial risks of the banking sector, their impact on the activity of banks and their minimization in conditions of economic instability. The banking sector is a key link that ensures the development of the financial system, but banking activity is risky. Therefore, it is important to study banking risks and ways to minimize them in order to increase the efficiency and stability of the banking system. The article provides a classification of banking risks in accordance with domestic literature. Factors due to which banking institutions are exposed to risks are reflected. Financial risks of the banking sector affect the net profit, capital of the bank. Therefore, the impact of risks on the financial stability and efficiency of Ukrainian banks was analyzed. The bank's regulatory capital is one of the most important indicators of its activity, the main purpose of which is to cover the negative consequences of various risks. During the entire studied period, there is a tendency to increase this indicator, which is positive. Due to external risks, namely the difficult military and economic situation, the profit of Ukrainian banks decreased. The credit risk, which is one of the most significant in banking activity, is characterized. The causes of credit risk in banking are given. The dynamics of the assets of Ukrainian banks, the volumes of loans granted, were studied. It was concluded that in modern conditions of banking activity, there is a slight slowdown in lending to the population and an increase in the volume of loans granted to business entities. To reduce credit risks, commercial banks use various methods to protect against credit risk: diversification, limiting, insurance, risk distribution. The banking sector cannot exist without risk, so it is necessary to look for ways to minimize them. Minimizing the level of financial risks in the banking sector involves the implementation of risk management measures and methods. Measures to minimize banking risks include preventive and protective measures. Banking risk management methods include: methods of avoiding and accepting banking risks. The article reflects the peculiarities of these measures and methods.

The article is devoted to the assessment of financial risks of the banking sector, their impact on the activity of banks and their minimization in conditions of economic instability. The banking sector is a key link that ensures the development of the financial system, but banking activity is risky. Therefore, it is important to study banking risks and ways to minimize them in order to increase the efficiency and stability of the banking system. The article provides a classification of banking risks in accordance with domestic literature. Factors due to which banking institutions are exposed to risks are reflected. Financial risks of the banking sector affect the net profit, capital of the bank. Therefore, the impact of risks on the financial stability and efficiency of Ukrainian banks was analyzed. The bank's regulatory capital is one of the most important indicators of its activity, the main purpose of which is to cover the negative consequences of various risks. During the entire studied period, there is a tendency to increase this indicator, which is positive. Due to external risks, namely the difficult military and economic situation, the profit of Ukrainian banks decreased. The credit risk, which is one of the most significant in banking activity, is characterized. The causes of credit risk in banking are given. The dynamics of the assets of Ukrainian banks, the volumes of loans granted, were studied. It was concluded that in modern conditions of banking activity, there is a slight slowdown in lending to the population and an increase in the volume of loans granted to business entities. To reduce credit risks, commercial banks use various methods to protect against credit risk: diversification, limiting, insurance, risk distribution. The banking sector cannot exist without risk, so it is necessary to look for ways to minimize them. Minimizing the level of financial risks in the banking sector involves the implementation of risk management measures and methods. Measures to minimize banking risks include preventive and protective measures. Banking risk management methods include: methods of avoiding and accepting banking risks. The article reflects the peculiarities of these measures and methods. Keywords: financial risks, banking sector, bank profit, credit risk, bank assets, bank risk minimization.

Research on risk or sustainability in the banking system does play an important role in the banking industry, where competitiveness increases unceasingly. Simultaneously, the trend of diversifying banks’ business models is becoming more popular. Thus, this paper attempts to investigate the impact of business model diversification on bank risk and stability. The proxy of business models includes (1)Non-net interest income; (2) trading income. The paper applied Generalized Least Squares (GLS) to conduct empirical research on 18 joint-stock commercial banks listed on the Vietnam Stock Exchange from 2010 to 2019 (The GLS with panel data). The results indicated the negative impact of non-net-interest income on bank stability. Trading in foreign exchange, gold has no meaning for bank risk. The study offers some theoretical and practical implications for banks to control better risks based on new empirical findings. Especially, the diversification of business models is ineffective, and banks need more suitable solutions.

This paper investigates the effects of market power on credit risk, revenue diversification and bank stability in selected Association of Southeast Asian Nations (ASEAN) member countries (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) using a sample of 153 commercial banks during 1998–2010. The authors find that bank market power is positively associated with credit risk and revenue diversification. Nevertheless, these associations diminished during the global financial crisis (GFC), implying that banks with greater market power have been better able to manage their non-performing loans during the crisis period. Bank stability, however, is not associated with market power. Instead, it is found to be a negative function of state ownership, asset composition and banking freedom. Overall, even though ASEAN banks with greater market power have higher credit risk, they are more diversified, thus leaving their overall bank risk unaffected.

The purpose of this study is to assess the current state of activity and peculiarities of the functioning of banking institutions of Ukraine under martial law and to determine the place and role of such an assessment in the system of monitoring the activity of banking institutions. The authors provide an approach to understanding the essence of the banking control system. The authors understand the banking control system as a set of rules, procedures, legislative regulations and institutions that provide supervision, regulation and assessment of banks' activities. The place and role of assessment of banking institutions' activity in the control system is substantiated. In order to evaluate the activity of banking institutions in the conditions of martial law, the peculiarities of the functioning of the banking system of Ukraine were revealed, its components, participants (National Bank of Ukraine, commercial banks, non-banking financial institutions, stock exchange, clients) were determined and their characteristics were provided. The consequences for the banking system caused by the war and the changes that the war led to are substantiated: bank closures, loss of assets, reduced trust in banking institutions, increased risk, change in business priorities and work in difficult conditions, restructuring and support. The trends of changes in the main indicators in terms of which the activity of banking institutions was evaluated were clarified, namely: the number of operating banking institutions, the profitability of assets and capital of banks, the amount of net assets of banks according to the profitability of capital, the share of non-performing loans in the portfolios of banks, the amount of total assets of Ukrainian commercial enterprises banks, and reasonably obtained results. It has been established that to date, banking institutions have managed to adapt to work under martial law. Despite the decrease in the number of commercial banks, indicators of profitability of assets and capital of the banking sector are gradually increasing, there is a sufficient level of capitalization and liquidity, an active credit policy is being pursued, and indicators of funding from the population and business are increasing. Currently, banking institutions effectively perform their functions and support the efficiency of the national economy. The main tools, the use of which will help ensure the further stable functioning of the banking system in modern conditions, have been identified. Such instruments are: financial support of banking institutions from the Government; regulatory measures of the National Bank of Ukraine aimed at ensuring the stability of the banking system; effective communication between banks, regulatory authorities, clients and the public; measures to stimulate the economy; regular monitoring and control of the state of the banking system.

PurposeThe paper analyzes the impact of bank opacity on financial stability in an emerging economy.Design/methodology/approachBased on a unique dataset of 31 Vietnamese commercial banks from 2007 to 2019, the paper captures earnings opacity via discretionary loan loss provisions and reflects individual bank stability through the accounting-based Z-score index and its disaggregate components. The least squares dummy variable corrected (LSDVC) approach is employed for empirical analysis.FindingsIn contradiction to most studies on developed economies, earnings management improves bank financial stability in Vietnam. Earnings management is more important for the financial stability of smaller banks. Further, the effect of financial information disclosure on bank stability is strengthened by unfavorable macroeconomic conditions, particularly economic downturns, the global financial crisis and uncertain times in banking.Originality/valueThis is the first study to shed light on how bank opacity influences bank financial stability in an emerging market. The evidence with the conditioning roles of bank size and macroeconomic factors, such as uncertainty in banking, is entirely novel in the related literature. Additionally, the paper contributes to a growing body of banking literature by using the LSDVC estimator to examine the association between bank opacity and bank stability.

The purpose of this research is to identify the effects of information disclosure on commercial bank performance and stability. Specifically, the study examines the relationship between different levels of information disclosure and the subsequent impact on various measures of bank return and risk. The focus is on securitised assets and credit derivative activities, both of which were at the heart of the sub-prime mortgage crisis of 2008. Using a sample of 27 US bank holding companies (BHCs) for the period from June 2001 to December 2008, a significant relationship between the quantity and quality of information disclosure and bank performance and stability is observed. A 'switching' behaviour is identified, whereby performance and stability initially decrease and then improve when additional information on a bank's securitisation and credit derivative activities are disclosed. This switching effect is possibly explained by economies-of-scale and a 'learning curve' effect. The results provide guidance for managing both the volume and quality of information disclosed by both bank managers and the regulatory authorities.

The deposit insurance system is a form of banking regulation that protects depositors and provides stability in the banking system. It is an important part of the financial safety net, especially in times of economic turmoil, as it provides explicit depositor protection and prevents a ‘bank run’. However, there are some negative effects on banking stability associated with the increase in bank risk, i.e., moral hazard, adverse selection and the principal-agent problem. The functioning of the deposit insurance system depends on its determinants, but also on the characteristics of the national banking system, supervision, legal and cultural framework and the general development of the country. Considering that the banking systems in EU and especially in comparison to Southeast European countries are very different, the aim of this paper is to study the impact of the deposit insurance system on bank stability depending on the characteristics of banks. Bank stability is analysed using bank risk variables: z-score and ratio of non-performing loans to total loans. By applying a dynamic panel analysis using the GMM Arellano–Bond (AB) estimator to a sample of EU countries and selected Southeast European countries, we provide further evidence on the deposit insurance system over the period from 2005 to 2014. The results provide evidence that large and systemically important banks behave in a riskier way, distorting the purpose of the deposit insurance scheme and jeopardising the safety of banking systems.

The repeated waves of the global financial crisis have impacted financial industry stability, especially commercial banks. Resultantly, banking stakeholders have taken steps to enhance the stability of these institutions. Diversification is considered effective in resolving the effects of the crisis. In this regard, a shift towards non-traditional revenue sources acts to enhance resilience. Bank size is important in shaping the relationship between diversification and financial stability. Previous literature has documented enough evidence on bank size and stability to show high resilience for large banks. Islamic banks are not as large as conventional banks, whether their resilience is equal to conventional banks? Using panel data from the banking sector, this study determines the impact of diversification on banking stability regarding bank size. The study results approve the full mediation of bank size on diversification and financial stability relations. Further, Islamic banking is found to be as resilient as conventional banking in the sample countries.