The Independent Association of Banks of Ukraine (NABU) considers one of its strategic goals to be the implementation of innovations in banking and their popularization among the banks of Ukraine. The ideas of the «Commercial Industrial Bank» (a member of the «EDAPS» consortium) regarding the development and implementation of a methodology for ratio analysis of a commercial bank based on early warning indicators have been recognized by NABU experts as innovative. An interview with the author of the innovative development — Iryna Valova, Head of the Internal Audit Department of OJSC «Commercial Industrial Bank», published in the analytical bulletin of NABU, we offer to your attention.
Iryna Anatolievna, for what purpose is the bank ratio analysis methodology implemented in the bank used?
-Modern trends in the development of the banking sector are characterized by an increased level of risk in activities — both of individual banking institutions and of the banking system as a whole. For the stable development of a bank, the protection of the interests of depositors and creditors, it is necessary to analyze the financial condition of both the bank itself and partner banks.
Therefore, the methodology of ratio analysis of the financial condition of a banking institution pursues the goal of determining with high accuracy the degree of bank reliability and the ability to fulfill its obligations to clients and partners without disruptions. This methodology is applied both to large banking institutions and to small ones, and is based on the use of publicly available information and bank reports.
What early warning indicators are used in this methodology?
-In the process of creating a financial analysis methodology, an important factor is the determination of such a list of indicators of the banking institution's activity that will ensure a qualitative assessment of its financial condition. Our methodology includes a system of analytical indicators and criteria for evaluating all the most important economic and financial parameters of the bank's vital activity, such as the structure of its liabilities and assets, capital, the structure of own and borrowed funds, the profitability of operations, and the risks of the financial instruments portfolio.
What assessment methods are used in the methodology instead of point-based assessment of indicators?
- Based on the analysis of the most common methodologies for assessing the financial condition of banks, the method of calculating the synthetic risk coefficient for a banking institution is used. It acts as an integral indicator for assessing the quality of management of the bank's assets and liabilities and the stability of the banking institution. This coefficient includes a system of relative indicators divided into five groups, which do not require additional expert assessments (points, levers of influence, etc.). The synthetic risk coefficient for a banking institution is applied by the bank to determine the financial condition of the banking institution, set the limit for interbank operations, etc.
What software is used in the analysis process?
- To implement the proposed methodology, an automated application has been developed that allows analyzing the financial condition of a partner bank, determining the size of the limit on interbank operations, determining the degree of risk for active operations performed with this bank, and forming the necessary reserves. The program uses MS Excel tools and data obtained from the reports of partner banks.
