JEL-classification: I 12 – 23; M 41
4th year student National University of Ostroh academy
Aspects of credit transaction records in commercial banks of Ukraine
The article specifies the point, types and forms of credit transactions in commercial banks of Ukraine. Characteristic of organization aspects and credit transactions record in commercial banks is done. Also the essence and the aim of credit transactions control in banks is revealed. Ways of record improvement and credit transactions control in commercial banks are developed.
Key words: credit transactions, credit transactions control and record, credit arrangements, market economy, balance accounts.
Formulation of the problem. Nowadays a commercial bank in a developed market economy can provide a client with near 200 different bank products and services. Wide transaction diversification is aimed to keep clients and to stay commercially viable unless strong unfavorable conjuncture. No wonder that in all countries with market economy they remain the main operational branch in credit system.
Banks are one of the main structures in market economy. Current state of Ukraine economy development needs constant attention to bank system, and adopting a policy, which is able to create favorable conditions for its stable and effective functioning. Crediting is the core direction implemented by bank active transactions. The credit portfolio includes mostly from third to a half of all bank assets.
Analyses of recent researches and publications. This issue was investigated by the following scholars: Kindratska L. M., Herasymovych A. M., Aristova A. M., Shulga H. P., Kyrychenko O.A., Moroz A. M., Savluk S. I., Zhukov E. F. But questions towards systematisation techniques of credit transactions record needs further consideration.
The purpose and objectives of the study. The purpose of the study is to consider the methodology of bank credit transactions record and to suggest ways of its improvement.
Presenting main material. The economic content of crediting is investigated as a complex and multifaceted process with its principles, conditions and methods. Credit arrangements between the bank and the borrower are based on the principles of partnership. This means, that all the issues, related to the crediting process, are decided on contractual basis by the parties when entering into a credit agreement.
While holding credit police, commercial banks are guided by the bank interests the interest of its shareholders, investors, clients and also take into account national interests of the bank .
Credit operation is a type of bank active transactions related to the placement of attracted bank funds by granting them for temporary use or assuming obligations on providing funds for temporary use under certain conditions, and it also gives guarantees, warrantees, letters of credit, acceptances, avails, placing deposits, arranging factoring transactions, financial leasing, issuing credits in the form of discounting bills, in the form of repo transactions, any extension of discharge of dept, which is given in exchange for the debtor’s obligation to repay the owed amount, as well as obligation to pay for debt service and other charges of such sum (referred payment).
In other words, as it is stated in the Law of Ukraine “About Banks and Banking Activity” , credit transactions consists in placing borrowed funds of legal entities (borrowers) and citizens on the behalf of bank, on its own terms and at its own risk.
Accounting estimate of credit transactions is based on generally accepted principles of international practice, in particular: constant functioning of the bank, sustainability of the accounting estimate, precautions, divisions of the accounting periods, dates of transactions, domination of the content over the form, evaluation of assets and liabilities, separate display of assets and liabilities.
Analytical accounting of the bank loans is maintained according to the types of credits by banks who gave those credits and terms of their maturity. There is a separate record for prolonged and overdue loans. According to the terms of usage, with determination of risks when stock formation, loans are divided into fixed-term loans of temporary financial difficulties, which arises because of production costs (commodity circulation), not secured by received costs in certain period of time. Long-term loans are given for more than one year. They are given if they are secured by collateral (property, property rights, securities), warrantee. They may be given in order to form fixed assets, for capital spending on reconstructions, modernization, expansion of already existing fixed assets, for new constructions, privatization and so on. Credit, with ended return period, set in loan agreement between the bank and the borrower, and not returned money to the borrower is called overdue. Deferred (prolonged)is a loan or its part, the return period of which is postponed at the request of the borrower for a later date.
Postponement of discharge of the loan is made as an additional agreement to the main credit arrangement and is usually accompanied with higher charge of interest rates. To deferred credits refer prolonged loans (credits). Nowadays banks take into account prolonged credits when credit classification into groups of risk in order to calculate assets for credit risks as the quality of debt service. As a result of classification of credit portfolio the category of each credit transaction is determined: “standard”, “under control”, “sum standard”, “doubtful”, or “hopeless”.
Accounting operations by credit transaction concern:
1) record of the par value of the loan and change of the main sum of the debt;
2) record of interest and commission income.
Record of the par value of the loan depends on the method of payment of interests: in a period, during the period. In case of the usage of the method “in a period”, interest may be paid periodically or at maturity, determined by credit agreement, and the sum of the par value of the loan and sum, transferred to the current account (or a correspondent bank account)-are the same.
Classification of accounts in the balance sheet for credit transactions record is shown below (pic.1):
Source: developed by the author, based on.
When applying the method “during the period” interest may be paid wholly or partially at the moment of granting a credit, by advance. Since the sum, transferred to the current account of the borrower will be reduced to the sum of interest, paid during the period, in financial record there is a separate account of the sum of the par value credit and sum of interest, paid by advance. During function of credit agreement, the sum of advance interest should be depreciated .
The credit portfolio of commercial bank should be viewed in two meanings: the broad and the narrow. In the broad it is understood as a complex management tool (assents and liabilities) of the bank; in the narrow as a set of credit tools for the main goals achievement.
So, the main goals of the formation of the credit portfolio are:
- the high level of income in recent period;
- high rate of the expected income in future long-term perspective;
- minimizing of the risk level of credit portfolio; compliance of the required liquidity credit portfolio;
- provision with maximize effect of tax incentives.
Effective asset management of your own credit portfolio by using the theories of commercial credit, conversion (transfer) of assets of the expected income allows commercial banks to get liquidity credit portfolio. Liquid credit portfolio for domestic banks in terms of its significant growth is vital .
The credit portfolio management should be viewed as a process, which consists of 5 consecutive stages:
- first- the choice of credit politics;
- second-credit market analysis;
- third- formation of credit portfolio;
- fourth- review of the credit portfolio; fifth- evaluation of the effectiveness of the credit portfolio.
Only a consistent and thorough compliance of each of the given stages will allow banks to improve credit portfolio management and avoid unexpected losses. For efficient crediting process, clear state economic policy is needed; the list of prioritized directions of investment, strengthening the protection of creditors rights and increase of society’s confidence in banks is needed as well.
If banks more carefully monitor the crediting process; enhance the transparence of bank procedures and technologies, it will ensure the quality of the credit portfolio, and therefore the efficiency of the bank institution functioning as a whole.
Conclusions. Therefore, to optimize the accounting procedures, that reflect the credit transactions, it is appropriate to offer the following steps: to introduce a methodology of record of delayed debt (prolonged), providing the accounts plan of accounting record of banks of Ukraine with accounts for record of the debt depending on the length of its origin (for example from 1 to 3 months, from 3 to 6 months an d from 6 months to 1 year).
So it will be easier for the banks to control the circulation of credit transactions according to classification – “standard”, “under control”, “substandard”, “doubtful”, “hopeless”, that will give an opportunity to resolve all the existing problems with the borrower and look for prospects towards the credit’s repayment. Also it is necessary to expand credit transactions record according to terms of giving or receiving, provided in accounts plan of banks of Ukraine for short-term debt record (up to 1 year), medium-term (1-3 years), and long-term debt record (more than 3 years).
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