BANKS’ SHORT-TERM LIQUIDITY COVERAGE RATIO (LCR) AND ITS IMPACT ON THE BANKING LIQUIDITY MANAGEMENT

Abstract

The article is devoted to the study of the LCR short-term liquidity coverage ratio effectiveness in the Ukrainian banks’ activity. The economic crisis of 2014-2016 showed the vulnerability of the Ukrainian banking sector to liquidity shocks. In order to improve the liquidity level of Ukrainian banks, the National Bank of Ukraine (NBU) introduced a new LCR liquidity standard, which is recommended by Basel III. The article also justifies the shortcomings of the liquidity standard, which were mandatory for the calculation by 2018. The nature and the calculation features of the new LCR liquidity coverage ratio are described. The main advantages of the LCR liquidity coverage ratio for Ukrainian banks are systematized, among them: 1) the higher degree of results reliability - since the ratio takes into account future cash outflows and income, its value provides a liquidity reserve in times of economic shocks; 2) standardization of Ukraine’s banking regulation norms according to international requirements – the LCR liquidity coverage ratio implementation will bring banking regulation in Ukraine closer to world standards, as this ratio is used in 45 countries of the world; 3) optimizing of banks’ liabilities structure – the LCR liquidity coverage ratio improves bank’s liability structure by reducing unstable sources of financing; 4) optimizing of banks’ assets structure – the LCR liquidity coverage ratio not only takes into account the volume, but also the quality of the bank's liquid assets, which makes the bank's assets structure more reliable; 5) activation of the government securities secondary market - as a result of increasing requirements for the volume and quality of liquid assets, the volume of trading operations between banks on government securities will also increase; 6) liquidity planning application - after the LCR liquidity coverage ratio introduction, the need for the banking liquidity effective management increases significantly. The article deals with the basic statistics of the liquidity indicators of the Ukrainian banking sector, including values of the LCR short-term liquidity coverage ratio in 2019-2020. The level of the Ukrainian banking sector profitability for the same period was also assessed.