Alina A. Ivanova, student
National University of “Ostroh Academy”
College of Economics
ENSURING FINANCIAL SUSTAINABILITY OF PJSC CB “PRIVATBANK”
Abstract. The article deals with the concept of “financial sustainability ” with regard to economic and legal category aspects. The author has analyzed the financial sustainability indexes of the commercial bank proposed by scientists and indicators by NBU. The research has suggested the ways to ensure the financial sustainability of the commercial bank.
Keywords: financial sustainability, liquidity, assets, capitalization, liability.
The relevance of the topic. The state of the banking system, the level of service and bank financing for enterprises have an important influence on the development of the economy. Nowadays one of the main problems of Ukraine is the maintenance its stability and reliability that can ensure the sustainability of each banking institution.
The most specifically the financial sustainability of the commercial bank reflects trends and problems of the banking sector. In the research process concerned problems of ensuring the financial sustainability of the commercial bank, questions of their compliance with the standards of financial sustainability, established by the NBU and proposed by scientists, are raised because without a strong and stable banking system it is impossible to develop the national economy.
PJSC CB “PrivatBank” is one of the most innovative banks in the world. According to the research of GFK Ukraine, in the third quarter of 2015 PJSC CB “PrivatBank” became the main bank for 41,8% of clients – individual persons, that is more than next eight banks taken together. Among corporate clients, this rate was 28,4%. Since “PrivatBank” holds a dominant position among all banks in Ukraine and is a basic element of the banking system of the country, ensuring its financial sustainability is an important and necessary task nowadays, which determines the relevance of the research.
The analysis of recent researches and publications. As the review of the economic literature has shown, such scholars paid attention to problems of ensuring the financial sustainability of banks: V.H. Andrew, N.H. Antonov, V.V. Vitlinskyy, O.D. Zaruba, N.N. Zakharov, Y.S. Maslenchenkov, V.P. Panteleev, P.Rose, J.Cinco, S.P. Halava, N.M. Sheludko and others. However, despite the numerous publications of this issue, today in the domestic economic literature the issue of financial sustainability of a commercial bank is still controversial and not developed enough from both scientific and practical aspects.
The purpose and objectives of the research. The purpose of the research is to identify the ways to ensure the financial sustainability of PJSC CB “PrivatBank” on the basis of the studying theoretical and the assessment of practical aspects of the selected issues. The main tasks of the work are defining of the notion “financial sustainability of the bank” and the analysis of this financial sustainability of the commercial bank according to the system of indexes developed by scientists and set by the NBU.
The statement of the basic material. The financial sustainability of the bank is interpreted from two perspectives: as an economic category and as a law one. As an economic category, it means such a financial condition of the bank, in which the bank is able to meet its obligations at any time on the condition of the maintenance an appropriate level of liquidity and solvency, the increase of profits and the diminution of risks, and the ability to maintain the state of effective functioning under the negative influence of external and internal factors .
The financial sustainability of the commercial bank as a law category means such a bank’s financial condition, in which the bank adheres to the established by the NBU performance benchmark’s values of financial sustainability. The very adherence to indexes provides financial sustainability of the bank . The scientists have developed various systems of indexes which would ensure a financially stable condition of the bank. A.M. Gerasimovych considers a group of indexes of financial sustainability that ensures the sustainability of the bank adhering to its norms. The analysis of these indexes on the example of PJSC CB “PrivatBank” is presented in the Table 1[3, p.599].
During 2012-2014 the reliability coefficient of PJSC CB “PrivatBank” exceeded the normative value (over 5%) and amounted to 16,60% in 2012, 14,61% in 2013, and 13,01% in 2014 respectively. In addition, deviations of this index from the norm are decreasing over the period and close to its upper limit. This is due to the excess of the growth rate of the denominator – the amount of the raised capital – over the growth rate of the numerator – the amount of the equity capital. As a result, this index, and therefore the imminence to the normative value, decreased. The change direction of this index indicates the reliability of the bank and the low level of vulnerability to various external influences; and the diminution of its deviation from the norm indicates the reduction of sustainability of the commercial bank and the level of dependence on raised capital.
The dynamics indexes of the financial sustainability of PJSC CB “PrivatBank”
|Reliability coefficient, %||within 5 %||16,6||11,6||14,61||9,61||13,01||8,01|
|Financial leverage coefficient||0,05 (1:20)||6,02||5,97||6,85||6,8||7,69||7,64|
|Coefficient of the share of the equity capital in the formation of assets – the adequacy of assets,%||at least 10 %||14,24||4,24||12,75||2,75||11,51||1,51|
|Security coefficient of the equity capital||X||0,121||Х||0,125||Х||0,123||Х|
|Multiplier coefficient of the capital||12 -15||10,02||-1,98||10,81||-1,19||11,76||-0,24|
* Calculated by the author according to the source .
The financial leverage coefficient, which is the inverse index of the reliability coefficient, indicates the ability of the bank to attract capital on the financial market. During the reporting period, this index is much higher than its normative value, and the deviation from the norm is increasing every year due to the excess of the growth rate of the equity capital over the growth rate of the raised capital. The increase in financial leverage coefficient indicates a reduction of its financial sustainability but also an increase in business activity, which is positively estimated.
An important index of financial sustainability is the adequacy coefficient of assets (the coefficient of the share of the equity capital in the formation of assets), the tendency of which indicates a sufficient amount of the equity capital of the bank for intensification and covering different risks. The deviation from the norm decreases as the growth rate of general assets is much higher than the growth rate of the equity capital, which influences on the alteration of this index in the opposite direction. Another important index of financial sustainability of the commercial bank is the security coefficient of the equity capital that points to the share of the capital, which is aimed at real estate. Over the analyzed period there is uneven dynamics of this index because in 2013 this index increased to 0,04 that is positively estimated. However, in 2014 this index decreased to 0,02, indicating a reduction of the share of the capital, which is aimed at real estate.
The multiplier coefficient of the capital, which characterizes the degree of coverage of assets with share capital, does not reach over the analyzed period its normative value – 12-15 times. However, the deviation from the norm is significantly reduced and in 2014 almost reaches the normative value; the deviation is only 0.24 times. This change of this index shows that, first of all, the growth rate of assets exceed the growth rate of the capital, and affirms the presence of reduction tendencies of using “capacities” with their attraction from the capital. According to the NBU Resolution “On approval of the instruction on the order of the regulation of banks in Ukraine”, the NBU sets the normative values for indexes of financial sustainability for banks of Ukraine that ensures providing them with financially stable state. In Table 2 indexes of financial sustainability of PJSC CB “PrivatBank” during 2012-2014 is calculated with the basis on the structure and the capital adequacy. In addition, each of calculated indexes has a certain normative value .The regulatory capital of PJSC CB “PrivatBank” during 2012-2014 was considerably higher than its normative value, and this exceeding was increasing, indicating the abidance of the minimum level of the regulatory capital by the bank for providing its ability to operate continuously and be financially stable to any external or internal factors. The adequacy norm of the regulatory capital during the analyzed period was exceeding the normative value. According to the dynamics of this index, it can be argued that the bank is able to promptly and fully settle accounts with its liabilities arising from trade, credit or other monetary operations. The higher values of the adequacy index of the regulatory capital are, the greater share of the risk is, which is taken by the owners of a bank, and the smaller share of the risk for depositors of a bank. To determine the ability of the bank to protect creditors and depositors from unexpected losses incurred by the bank in the course of business, depending on the size of various risks, the adequacy norm of the equity capital is set.
The dynamics of the normative indexes of financial sustainability of
PJSC CB “PrivatBank” based on the structure and capital adequacy
|Index||Years||Absolute deviation||Deviation from the norm|
|Regulatory capital, m. UAH. (I1)||18 551||21 888||22 022||3 337||134||18 431||21 768||21 902|
|(I2) Adequacy norm of the regulatory capital/paying capacity, %||11,5||12||11||0.5||-1||1,5||2||1|
|(I3) Adequacy norm of the equity capital,%||11,15||13,48||11,56||2,33||-1,92||2,15||4,48||2,56|
* Calculated by the author according the source .
In 2013 the adequacy norm of the equity capital of PJSC CB “PrivatBank” amounted to 13,48%, which is 4,48% more than its normative value. This growth rate is due to the decrease in general assets of the bank and the increase in the sum of the equity capital during the analyzed period. However, the decrease of this index in 2014 for 1,92% caused the decrease of the deviation from the norm from 4,48% to 2,56%. Thus, we can conclude that the bank is trying to protect depositors well against unexpected losses, and it indicates the reliability of the bank. The state of the bank can be considered financially sustainable since during the analyzed period the bank adheres to all norms set by the NBU, which is based on the structure and the capital adequacy.
The NBU set another group of indexes that determine the bank financially sustainable. The analysis of indexes of financial sustainability of the bank, based on the structure of raised and borrowed funds are presented in the Table 3. During 2012-2014 PJSC CB “PrivatBank” complied with all liquidity norms established by the NBU. Thus, the instant liquidity norm, which is set to monitor the ability of the bank to provide timely fulfillment of its monetary obligations by high liquid assets, exceeded the normative value, and the deviation made 55%. The decrease of this index was due to the reducing the amount of bank liabilities, which are registered on current account, that has a negative effect on the financial sustainability of the bank.
The dynamics of indexes of financial stability of PJSC CB “PrivatBank”
based on the structure of raised and borrowed funds during 2012 – 2014*
|(I4) Instant liquidity norm, %||75||20||55||85||20||65||70||30||40|
|(I5) Current liquidity norm, %||88||40||48||90||40||50||84||40||44|
|(I6) Short-term liquidity norm,%||89||60||29||114||60||54||99||60||39|
* Calculated by the author according the source .
Current liquidity norm, which is set to determine the balance of the timing and the sum of liquid assets and liabilities of the bank, made in 2012 88%, and in 2013 increased to 90% at the normative value 40%. However, in 2014 it decreased by 6% and amounted to 84%. It indicates that the bank can timely meet its monetary obligations that will positively affect its financial sustainability. The short-term liquidity norm has significantly exceeded its normative value in 2012 and made 89%; in 2013 and 2014 it increased to 114% and 99% respectively that indicates the possibility of the bank to fulfill short-term liabilities by liquid assets. The increase of this index is explained by the growth of cash and precious metals.
To sum up, the state of the bank can be considered financially sustainable because PJSC CB “PrivatBank” adheres to all norms set by the NBU and based on the structure of raised and borrowed funds.
Findings. Having analyzed the indexes of financial sustainability of PJSC CB “PrivatBank”, proposed by A.M. Gerasimovych, we can conclude that most indexes fall within the limits of its normative value – the reliability coefficient, the financial leverage coefficient, the sufficiency coefficient of assets, but during the analyzed period the deviation from the norm growths in dynamics that is negatively estimated and undesirable for the bank. The indexes proposed by the NBU have the analogous characteristics. Most of them fall into limits of the normative value but their deviations from the norm are reducing in the recent years. Therefore, maintaining these indexes at a stable level should be an important measure in the bank policy to ensure its financial sustainability that can be achieved through the following measures: improving the planning mechanism of the attraction and the allocation of financial resources; creating the department of customers relations to deal with the involvement of the individual and entity funds in deposits of the bank; establishing special bonus programs for loyal depositors with the simultaneous control of the quality of the bank loan portfolio; creating the department of the credit risk control. The financial sustainability is an important component in the bank functioning that depends on the nature of its banking. That is why the management should make every effort to maintain the financial sustainability at a high level.
- Postanova NBU «Pro zatverdzhennia instruktsii pro poriadok rehuliuvannia diialnosti bankiv v Ukraini» N 368 vid 28.08.2001. [Electronic resource].- Access mode: http //zakon.rada.gov.ua
- Vasiurenko L.V., Fedosik I.M. Resursy komertsiinoho banku: teor. ta prykl. analiz: Monohrafiia [Text] – Kharkiv: PP Yakovlieva, 2003. – 88 s.
- Analiz bankivskoi diialnosti: Pidruchnyk / A.M. Herasymovych, M.D. Alekseienko, I.M. Parasii-Verhunenko ta in.; – K.: KNEU, 2004. – 599 s.
- Ofitsiinyi Internet-sait NBU.– [Electronic resource]. – Access mode: http://www.bank.gov.ua/control/uk/publish/article?art_id=123698
- Richnyi finansovyi zvit PAT KB «PryvatBank» za 2012-2014 rr. [Electronic resource]. – Access mode: https://privatbank.ua/about/finansovaja-otchetnost/