Advanced Methods of Bank Risk Management
Main approaches to building up a system for management of financial risks faced by banks are discussed. It is shown that risk management in banking is a complex process aimed at identification of risk sources, assessment and minimization of the effects of the identified risks, in order to reduce their adverse impact on the commercial bank performance. The main objective of banks is defined as maintaining the constant balance between the needs in resources and the capabilities of their acquisition. The importance and necessity of measurement and quantification of the level of specific types of risk and/or the cumulative risk is highlighted. Special emphasis is made on the credit risk caused by the probability of bank counterparties’ failure to fulfill their obligations. Its usual consequence is failure to repay (fully or partially) the debt principal and the interests in terms specified by the contract. It is shown that the level of credit risk in a country is conditional on macro- and microeconomic factors, with highlighting their effects. It is demonstrated that the adverse impact of inflation is the most explicit one, as it provokes devaluation of bank assets which major share is funds and financial investment. Functional risks are caused by subjective and objective factors, and by system failures, and they cover strategic risks related with mistakes in strategic management. Financial risks can trigger unpredictable change in the amount, profitability and structure of bank assets and liabilities. The liquidity risk can occur when a bank has insufficient or surplus liquidity. The insufficient liquidity can provoke bank insolvency. The inflation risk has ambiguous effects for bank operation.
The successful risk management is a critically important condition for competitiveness and reliability of any financial organization; its objective is to identify and prevent potential adverse events, and to find the tools for minimization of their effects as part of the elaborated methodology of management. Further research devoted to problems of risks faced by the Ukrainian banking system and economic analysis of specific risks will help outline the ways of cost reduction in the banking sector and constantly extend the range of bank services.
Pro banky I bankivsku diialnist. Zakon Ukrainy vid 07.12.2000 r. № 2121-III stanom na 14.04.2021 r. [On Banks and Banking Activities. Law of Ukraine of December 7, 2000 No 2121-III as of April 14, 2021]. zakon.rada.gov.ua. Retrieved from https://zakon.rada.gov.ua/rada/show/2121-14#Text [in Ukrainian].
Dyba, M. I., & Stukan, I. Yu. (2018). Dynamichnyi indykator likvidnosti bankivskoi systemy v umovakh ekonomichnoi nestabilnosti. [Dynamic indicator of liquidity of the banking system in conditions of economic instability]. Investytsii: praktyka ta dosvid – Investments: practice and experience, 10, 15–21 [in Ukrainian].
Yepifanov, A. O., Vasylieva, T. A., Kozmenko, S. M. et al. (2012). Upravlinnia ryzykamy bankiv [Bank risk management]. A. O. Yepifanov, T. A. Vasylieva (Eds.). (Vols. 1–2. Vol. 2. Upravlinnia rynkovymy ryzykamy ta ryzykamy systemnykh kharakterystyk [Management of market risks and risks of system characteristics]). Sumy: DVNZ “UABS NBU” [in Ukrainian].
Kovalenko, V. V. (2020). Upravlinnia ryzykom likvidnosti bankiv v umovakh finansovoi nestabilnosti [Liquidity risk management of banks in conditions of financial instability]. Efektyvna ekonomika – Efficient economy, 7. Retrieved from http://www.economy.nayka.com.ua/?op=1&z=8057 [in Ukrainian].
Prasolova, S., & Cherniavska, O. (2014). Udoskonalennia upravlinnia ryzykom likvidnosti bankiv yak skladova formuvannia kontseptsii yikhnoi finansovoi bezpeky [Improving the liquidity risk management of banks as part of the formation of the concept of their financial security]. Visnyk Natsionalnoho banku Ukrainy – Bulletin of the National Bank of Ukraine, 4, 58–64 [in Ukrainian].
Prymostka, L. O. (Ed.). (2007). Upravlinnia bankivskymy ryzykamy [Bank risk management]. Kyiv: DVNZ “KNEU imeni Vadyma Hetmana” [in Ukrainian].
Stelmakh, V. S., Mishchenko, V. I., Krylova, V. V., Nabok, R. M., Prikhodko, O. G., & Grishchuk, N. V. (2008) Likvidnist banku: okremi aspekty upravlinnia ta svitovyi dosvid rehuliuvannia i nahliadu: naukovo-analitychni materialy [Bank liquidity: some aspects of management and world experience of regulation and supervision: scientific and analytical materials]. Kyiv: Natsionalnyi bank Ukrainy [in Ukrainian].
Pro skhvalennia Metodychnykh rekomendatsii shchodo orhanizatsii ta funktsionuvannia system ryzyk-menedzhmentu v bankakh Ukrainy: Postanova Pravlinnia Natsionalnoho banku Ukrainy vid 02.08.2004 r. № 361, stanom na 21.06.2012 r. [On approval of Methodical recommendations on the organization and operation of systems risk management in Ukrainian banks. Resolution of the Board of the NBU of August 02, 2004 as of June 21, 2012]. zakon.rada.gov.ua. Retrieved from https://zakon.rada.gov.ua/rada/show/v0361500-04 [in Ukrainian].
Pro zatverdzhennia Klasyfіkatsіi іnstytutsіinykh sektorіv ekonomіki Ukrainy: Nakaz Derzhavnoi sluzhby statystyky Ukrainy vid 03.12.2014 r. № 378 stanom na 25.02.2020 r. [On approval of the classifications of the institutional sectors of the economy of Ukraine. Order of the State Statistics Service of Ukraine of December 03, No 378 as of February 25, 2020]. zakon.rada.gov.ua. Retrieved from https://zakon.rada.gov.ua/rada/show/v0378832-14 [in Ukrainian].
Hroshovo-kredytna statystyka NBU [Monetary statistics]. bank.gov.ua. Retrieved from https://bank.gov.ua/ua/statistic/sector-financial/data-sector-financial [in Ukrainian].
Pro rozpodil bankiv na grupy: Rishennia Komitetu z pytan nahliadu ta rehuliuvannia diialnosti bankiv, nahliadu (oversaitu) platizhnykh system NBU vid 05.02.2021 r. № 40 [On the division of banks into groups. Decisions of the Committee on Supervision and Regulation of Banking Activities, Supervision (Oversight) of Payment Systems of the National Bank of Ukraine of February 05, 2021]. Retrieved from https://bank.gov.ua/ua/legislation/Decision_05022021_40_CCRB_PS [in Ukrainian].
Pro zatverdzhennia Instruktsii “Pro poryadok rehuliuvannia diialnosti bankiv v Ukrainy”: Postanova Natsionalnoho banku Ukrainy vid 28.08.2001 r. № 368, stanom na 19.02.2021 r. [On the procedure for regulating the activities of banks in Ukraine. Resolution of the Board of the NBU of August 28, 2001 as of February 19, 2021]. zakon.rada.gov.ua. Retrieved from https://zakon.rada.gov.ua/laws/show/z0841-01 [in Ukrainian].
Abstract views: 107 PDF Downloads: 64