Economic Analysis: Theory and Practice
 

Analyzing the financial stability of commercial banks based on relationships between profits and risks

Vol. 16, Iss. 11, NOVEMBER 2017

Received: 28 August 2017

Received in revised form: 18 September 2017

Accepted: 18 October 2017

Available online: 29 November 2017

Subject Heading: FINANCIAL STABILITY AND SOLVENCY

JEL Classification: E40, E58

Pages: 2123–2144

https://doi.org/10.24891/ea.16.11.2123

Gospodarchuk G.G. Temporarily unemployed, Nizhny Novgorod, Russian Federation sergeyg1@yandex.ru

Gospodarchuk S.A. Temporarily unemployed, Nizhny Novgorod, Russian Federation sergeyg1@yandex.ru

Importance The article investigates problems related to quantitative and qualitative assessment of financial stability of banks.
Objectives The purpose is to underpin the necessity and expediency of using the profit and risk indicators in the analysis of commercial banks' financial stability.
Methods The study rests on the analysis of methodological approaches and methods for evaluation of banks' financial soundness, methods for assessing banking risks by international financial organizations and central banks. The study also includes the analysis of financial statements presented by commercial banks, created time series with information on the level of profitability of banks and aggregated banking risks.
Results We offer a methodology to calculate the profit/risk indicator (PR) enabling a quantitative assessment of financial stability of a bank; present a simplified method to evaluate aggregate banking risks based on published financial statements, and an evaluation scale for qualitative characteristics of financial stability. The paper provides quantitative and qualitative evaluation of financial stability of the analyzed banks, and reveals trends in the financial stability of banks under investigation.
Conclusions The PR indicator can be used by the Bank of Russia in the assessment of financial strength of banks as an indicator of the risk management quality. Evaluation of financial stability based on the PR indicator may be useful for minority shareholders and external users, for instance, rating agencies, analytical centers, and potential investors of banks.

Keywords: bank, financial stability, profitability, risk

References:

  1. Padoa-Schioppa T. Central Banks and Financial Stability: Exploring a Land in Between. In: The Transformation of the European Financial System, ed. by V. Gaspar et al. Frankfurt on the Main, European Central Bank, 2003, pp. 269–310.
  2. Kopan T., Minoyu K. [Sustainability of lending]. Finansy i razvitie = Finance and Development (F&D), 2013, no. 3, pp. 52–55. (In Russ.)
  3. Fetisov G.G. Ustoichivost' kommercheskogo banka i reitingovye sistemy ee otsenki [Stability of a commercial bank and rating systems for its evaluation]. Moscow, Finansy i statistika Publ., 1999, 168 p.
  4. Urazova S.A. [Sustainability of the banking system: Theoretical and methodological aspects]. Bankovskoe delo = Banking, 2006, no. 12, pp. 26–32. (In Russ.)
  5. Lukasevich I.Ya., Barannikov R.E. [Improving the methods to assess banks' stability]. Bukhgalteriya i banki, 2002, no. 9, pp. 68–72. (In Russ.)
  6. Kornienko Yu.V. [The impact of global processes on the financial soundness of banks]. Vestnik Murmanskogo gosudarstvennogo tekhnicheskogo universiteta = Vestnik of MSTU, 2013, vol. 16, no. 2, pp. 242–247. (In Russ.)
  7. Mozhanova I.I., Antonyuk O.A. [Improvement of approaches to the assessment of financial stability of the bank]. Finansovyi zhurnal = Financial Journal, 2014, no. 1, pp. 141–146. (In Russ.)
  8. Il'yasov S.M. [The nature and major factors of the banking system's stability]. Den'gi i kredit = Money and Credit, 2006, no. 2, pp. 45–48. (In Russ.)
  9. Melik'yan G.G. [Topical issues of capitalization, sustainability and competitiveness of the Russian banking sector]. Den'gi i kredit = Money and Credit, 2007, no. 7, pp. 10–14. (In Russ.)
  10. Rovenskii Yu.A., Natocheeva N.N., Poletaeva V.M. [Social and Economic Problems Affecting Financial Stability of Russian Banks]. Den'gi i kredit = Money and Credit, 2017, no. 2, pp. 69–74. (In Russ.)
  11. Maslenchenkov Yu.S. Finansovyi menedzhment v kommercheskom banke: fundamental'nyi analiz [Financial management in a commercial bank: A fundamental analysis]. Moscow, Perspektiva Publ., 1996, 160 p.
  12. Bondarenko A.V. [Evaluation of financial stability of the largest Russian banks using the modified CAMEL methodology]. Problemy sovremennoi nauki i obrazovaniya = Problems of Modern Science and Education, 2016, no. 28, pp. 60–67. (In Russ.)
  13. Tatarinova L.V. Metodicheskie podkhody k otsenke finansovoi ustoichivosti kommercheskogo banka [Methodological approaches to commercial bank's financial stability evaluation]. Irkutsk BSUEL Publ., 2013, 132 p.
  14. Schinasi G. Defining Financial Stability. IMF Working Paper, 2004, no. WP/04/187. URL: http://www.imf.org/external/pubs/ft/wp/2004/wp04187.pdf
  15. Kadomtseva S.V., Israelyan M.A. [Macroprudential regulation and development of early warning system about potential financial instability in Russia]. Nauchnye issledovaniya ekonomicheskogo fakul'teta, 2015, vol. 7, iss. 4, pp. 7–27. URL: https://archive.econ.msu.ru/sys/raw.php?o=3708&p=attachment (In Russ.)
  16. Rosengren E.S. Opredelenie finansovoi stabil'nosti i nekotorye politicheskie posledstviya primeneniya opredeleniya. V kn.: Zarubezhnye issledovateli o global'nom finansovom krizise i ego urokakh [Defining Financial Stability, and Some Policy Implications of Applying the Definition. In: Foreign Researchers on the Global Financial Crisis and Its Lessons]. Moscow, Institute of Scientific Information for Social Sciences of RAS Publ., 2012, pp. 117–128.
  17. Rozanova N.M., Baranov A.A. [Risk management in modern banking]. TERRA ECONOMICUS, 2015, vol. 13, no. 3, pp. 78–98. (In Russ.)
  18. Ustoichivost' bankovskoi sistemy i razvitie bankovskoi politiki: monografiya [Sustainability of the banking system and development of the banking policy: a monograph]. Moscow, KnoRus Publ., 2014, 280 p.
  19. Bhattacharya S., Goodhart C.A.E., Tsomocos D.P., Vardoulakis A.P. A Reconsideration of Minsky's Financial Instability Hypothesis. Journal of Money, Credit and Banking, 2015, vol. 47, iss. 5, pp. 931–973. URL: https://doi.org/10.1111/jmcb.12229
  20. Goodhart C.A.E., Sunirand P., Tsomocos D.P. A Model to Analyse Financial Fragility. Economic Theory, 2006, vol. 27, iss. 1, pp. 107–142. URL: https://doi.org/10.1007/s00199-004-0572-7
  21. Goodhart C.A.E., Sunirand P., Tsomocos D.P. A Time Series Analysis of Financial Fragility in the UK Banking System. Annals of Finance, 2006, vol. 2, iss. 1, pp. 1–21. URL: https://doi.org/10.1007/s10436-005-0030-y
  22. Aspachs O., Goodhart C.A.E., Tsomocos D.P., Zicchino L. Towards a measure of financial fragility. Annals of Finance, 2007, vol. 3, iss. 1, pp. 37–74. URL: https://doi.org/10.1007/s10436-006-0061-z
  23. King M. Uroki krizisa: bankovskoe delo ot Bedzhkhota do Bazelya i obratno. V kn.: Zarubezhnye issledovateli o global'nom finansovom krizise i ego urokakh [Banking: From Bagehot to Basel, and Back Again. In: Foreign researchers on the global financial crisis and its lessons]. Moscow, Institute of Scientific Information for Social Sciences of RAS Publ., 2012, pp. 52–59.
  24. Trichet J.-C. Intellektual'nye vyzovy v epokhu makroprudentsial'nogo regulirovaniya. V kn.: Zarubezhnye issledovateli o global'nom finansovom krizise i ego urokakh [Intellectual challenges to financial stability analysis in the era of macroprudential oversight. In: Foreign researchers on the global financial crisis and its lessons]. Moscow, Institute of Scientific Information for Social Sciences of RAS Publ., 2012, pp. 105–109.

View all articles of issue

 

ISSN 2311-8725 (Online)
ISSN 2073-039X (Print)

Journal current issue

Vol. 16, Iss. 11
November 2017

Archive