FINANCIAL STABILITY OF THE BANKING SYSTEM AS AN INDICATOR OF THE EFFECTIVENESS OF THE ECONOMIC SECURITY OF THE STATE

The stability and profitability of a commercial bank directly depends on the quality organization of credit services. At the same time, it is important to explore the methodological tools for assessing the effectiveness of loan portfolio management, which will allow banking institutions to make timely management decisions regarding the formation of the optimal loan portfolio. The article describes the methodological approaches to assessing the effectiveness of credit portfolio management of a commercial bank. The most common methodological approaches, methods and indicators for determining the effectiveness of the bank's loan portfolio management are systematized. The general efficiency of management of banking institution on the basis of the analysis of the basic financial and economic indicators of activity of commercial bank is defined. The profitability of the bank's activity, the growth of cash and cash equivalents on accounts, the increase in the bank's loan portfolio and the expansion of the customer base for the period under study were established. The dynamics and structure of the loan portfolio of a commercial bank, which is dominated by consumer lending to individuals, which is the largest profitable segment of banking, has been studied. An assessment of compliance by a commercial bank with credit risk standards set by the National Bank of Ukraine was performed. The coefficient method is used to assess the effectiveness of the loan portfolio. Indicators of credit portfolio management efficiency have been studied: credit activity ratio; the share of the loan portfolio in total liabilities; equity coverage ratio of the loan portfolio; loan portfolio growth rate; the share of non-performing loans in the loan portfolio; loan portfolio hedging ratio; credit risk coverage ratio; the share of quality loans in the loan portfolio; the share of written-off loans in the loan portfolio; loan portfolio profitability indicator. The results of the calculation of some of these indicators indicate a decrease in the quality of the bank's loan portfolio. Based on the calculation of financial ratios, the directions of optimization of the loan portfolio of a commercial bank are identified.

Introduction. Effective operation of the banking system is key to the development of market relations in Ukraine. This determines the main function of the National Bank of Ukraine in regulating banking activities. The financial stability of the banking system determines its ability to provide the necessary banking resources for the socio-economic development of Ukraine. Therefore, there is an important issue of improving the scientific and methodological approach to assessing the financial stability of the banking system. The purpose of the article is to systematize foreign and domestic experience in the use of financial stability assessment systems in the banking sector, to identify the advantages and disadvantages of methods for assessing the financial stability of banks, as well as to summarize modern trends in ensuring the stable operation of the banking system of Ukraine. Research methods. The following methods were used in the research process: theoretical generalization, the possibilities of which were used to generalize modern scientific and methodical approaches to assessing the financial condition of banks; system approach and comparative analysis - to compare indicators of financial stability. The results. The analysis of the system of indicators and the systematization of scientific and methodological approaches to the assessment of the financial condition of banks was carried out. The main indicators that reflect the current financial condition of banks are considered. The article examines the main directions of assessing the financial stability of banking institutions, in particular: using rating assessment systems; by calculating financial stability indicators developed by the National Bank of Ukraine based on the recommendations of the International Monetary Fund; based on the calculation of the main financial indicators of banks; on the basis of calculation and monitoring of banks’ compliance with prudential regulations. This set of indicators can help to understand the quantitative and qualitative aspects of the processes taking place in the banking system of Ukraine. An analysis of financial stability indicators recommended by the International Monetary Fund and used by the National Bank of Ukraine as a means of assessing the financial stability of the domestic banking system has been carried out. The advantages and disadvantages of the existing approaches to assessing the stability of the functioning of the domestic banking system are revealed. The key ways that will help ensure the stability of the financial condition of banking institutions are proposed. Perspectives. Factors influencing and managing the financial stability of the banking system are a promising direction for further scientific research.

The article is devoted to the problem of ensuring the financial stability of commercial banks as a key factor in the stability of the banking system and the economy as a whole. In this context, it is substantiated that in conditions of growing uncertainty and risks associated with global economic crises, stress testing becomes an important tool for assessing the ability of banks to withstand adverse conditions. An analysis of key aspects of methodological support for stress testing was carried out, including the development of scenarios, assessment of the impact of stress scenarios on the bank’s financial indicators, analysis of results and development of measures to improve financial stability. On this basis, a description of key aspects of ensuring the stress testing of the financial stability of a commercial bank is provided, their positive and negative features are highlighted. A scheme of methodological support for stress testing of the financial stability of a commercial bank is built, which includes such elements as: phased implementation of methodological techniques, tools and evaluation criteria for implementation. The criteria for assessing the methodological support for stress testing of the financial stability of a commercial bank are disclosed, which allow: to determine whether the capital reserve is sufficient to cover possible losses in the event of adverse scenarios; to assess the bank’s ability to timely fulfill its financial obligations under stress scenarios, and to determine whether the scenarios also indicate compliance with regulatory requirements, the timeliness of threat identification and the level of risk management effectiveness. It is substantiated that the formation of methodological support for stress testing of the financial stability of a commercial bank is an effective tool for ensuring the stability of the banking system and increasing the financial stability of banks. It provides a comprehensive approach to assessing the bank’s ability to withstand adverse conditions and developing measures to minimize risks.

PurposeThis paper aims to empirically assess the contribution of Islamic banks toward the financial stability of Pakistan. For this, the authors investigate the relative financial strength of Islamic banks and their contribution toward the financial stability. They also examine the relationship between the competitive conduct of banks and banking system stability.Design/methodology/approachThe authors use quarterly data of ten conventional banks, four full-fledged Islamic banks and six standalone Islamic branches of conventional banks of Pakistan for the period 2006-2012. The z-score has been computed and used as the measure of stability of banks and the random effects estimator applied to quantify the impact of bank-specific variables and macroeconomic indicators on the financial stability. The empirical framework used in the paper enables the authors us to examine the differential effect of each underlying variable on the financial stability across Islamic and conventional banks. To check the robustness of the results, the authors have estimated several models with different specifications.FindingsThe regression results indicate that income diversity, profitability ratio, loan to asset ratio, asset size and the market concentration ratio of banks have significant effects on the stability of banks. Comparing Islamic and conventional banks, notable differential effects of the empirical determinants of financial stability for Islamic and conventional banks have been observed. The results suggest that Islamic banks have performed better as compared to conventional banks and contributed more effectively in the stability of financial sector. Overall, the results depict that the contribution of Islamic banks toward the financial stability has been reasonable and prospective.Practical implicationsThe empirical results of the paper are very useful not only for banks’ managements but also for the investors, bank customers and policymakers. Specifically, the findings help in enhancing our understanding as to how the bank-specific variables and macroeconomic indicators are related to the financial stability of the banking system. The results also help understand the role of both Islamic and conventional banks in the financial stability. Further, the results suggest that the financial soundness can be enhanced by creating healthy competition in the banking industry. The results about macroeconomic indicators imply that protective measures are required to intensify (mitigate) the positive (negative) effect of gross domestic product (inflation) on banks’ financial stability.Originality/valueThis paper provides an overall comparative analysis of financial stability of both Islamic and conventional banks of Pakistan. First, the paper computes the z-score for each bank included in the sample, and then, it performs the regression analysis to study how bank-specific variables and macroeconomic factors are related to the financial stability of banks. Unlike the previous studies, our empirical framework enables the authors to examine the differential effect of each underlying variable on the financial stability across Islamic and conventional banks.

Chaikovskyi Ye.Ya. MODEL FOR ASSESSING AND FORECASTING THE FINANCIAL STABILITY OF THE BANKING SYSTEM OF UKRAINE Purpose. The aim of the article is to develop a model for assessing the financial stability of the banking system based on the integral financial stability index, which will contribute to maintaining the economic security of the state, as well as the application of the scenario forecasting method to take into account various risks and uncertainties affecting the stability of the banking system. Methodology of research. The following methods were used during the study: the indicator normalization method – to bring the indicators to a single scale (0; 1); the expert assessment method – to determine the weighting coefficients; the weighted average index method – to calculate the integrated financial stability index; the comparative analysis method – to determine the optimal ranges for each indicator; the statistical method – to analyse the variability of indicators over the years, identify trends and correlations between different elements of financial stability; the generalization method – to form the main results. Findings. The integrated financial stability index (IFS) is considered as an important tool for assessing and modeling the resilience of the banking system to economic and financial shocks. The methodology for calculating the IFS is presented, which includes five stages: selection of key financial stability indicators, normalization of indicators, determination of weight coefficients, calculation of the integrated indicator, and classification of the level of stability of the banking system. Based on this methodology, the IFS was calculated for the period 2019-2024 and the forecast for 2025-2030 under three scenarios (pessimistic, baseline, and optimistic). The results indicate the effectiveness of using scenario analysis to predict the stability of the banking system, which allows taking into account various risks and economic factors, as well as assessing the system's ability to respond to changes in the economic environment. Originality. The application of the integrated financial stability index of the banking system as an important tool for assessing and modeling financial stability, as well as the scenario forecasting method, which allows taking into account various risks and uncertainties affecting the stability of the banking system, has been further developed. Practical value. The results of the conducted research provide a deep understanding of the tools for assessing and modeling financial stability. In particular, the results contribute to improving the policy of the NBU and other state bodies regarding the timely identification of problems in the banking system and making informed decisions to support the stability of the financial sector. The application of the scenario forecasting method allows assessing future risks and uncertainties that may affect financial stability, as well as developing strategic plans to strengthen the system under different economic scenarios. This makes it possible to respond more effectively to possible economic shocks and adapt macroprudential regulation policies, ensuring the stability of banks and the stability of the economy as a whole. Key words: financial stability index, banking system, macroprudential indicators, capital ratios, liquidity, credit risk ratios, return on assets, return on capital, normalized values, integrated values.

The article carries out a thorough analysis of the essence of the concept of "credit risk", high-lights its causes and main features. The authors provide an analysis of the main indicators of the credit market of Ukraine, namely the dynamics of changes in credit risk factors. Such indicators include: the share of the loan portfolio in the assets of banks, the ratio of equity capital to the loan portfolio, the share of loans in foreign currency, the share of overdue loans and the share of non-performing loans, NBU credit risk standards and their compliance by commercial banks. Also, after the analysis, the au-thors proposed an organizational and economic mechanism of credit risk management, which contains such components as: methodical base, provision, levers and principles, indicators, resources, factors affecting credit risk, management and control bodies, the object and purpose of management. After that, the authors outline the main principles of its operation and recommendations for implementation. In general, for the implementation of the proposed mechanism, it is envisaged to finalize the regulato-ry and legal framework, conduct a flexible and adaptive credit policy to changes in the market situa-tion both at the level of the country and at the level of an individual commercial bank, and introduce a single broad information base for assessing all criteria of the solvency of each individual the borrow-er, development of an effective personnel policy of a commercial bank, provision of an independent, systematic and continuous assessment of credit risks in order to ensure the appropriate level of finan-cial stability of the bank.

The article considers the impact of the COVID-19 pandemic on the regulatory activities of the National Bank of Ukraine. The interdependence of the banking and economic systems and the impact of their inefficient interaction on banking in general and each individual commercial bank in particular are analyzed. It is established that before the onset of the pandemic crisis in the world, the banking system of Ukraine was characterized as stress-resistant, taking into account the reforms of liquidity and recapitalization. The stability of the banking system is affected by economic pressures caused by the spread of coronavirus and lower oil prices. According to one of the world’s three reputable rating agencies, Fitch Ratings, the level of pressure on banks depends on the depth and duration of the economic downturn, specific risks to the national economy and external finances (for example, tourism revenues or remittances), national government measures and individual banks. The implementation of anti-crisis measures developed by the National Bank of Ukraine as tools to increase financial and economic security in the country as a whole, and financial institutions in terms of increasing banking risks caused by the outbreak of the COVID-19 pandemic. The spread of this infection also has negative consequences for the economy and financial system of Ukraine. Therefore, the National Bank of Ukraine has introduced a system of anti-crisis measures during quarantine in the country. The NBU covers information about events in the economy through its own website, social media pages, and the media. These measures are implemented to mitigate the impact of coronavirus disease on citizens and businesses, and to ensure the quality and smooth operation of the financial system. The banking system continues to operate, without imposing any restrictions on the operation of banks and their operations. As a result of the study, a system of measures of national support for the banking sector by the National Bank of Ukraine and the International Monetary Fund was proposed through the prism of a number of guidelines and regulatory points, which are supporting instruments rather than control and regulatory ones.

The article analyzes the current state of the credit portfolio of domestic banks in the context of introduction of new approaches of the National Bank to assess the financial status of the debtor – a legal entity. Ukraine implements the recommendations of the Basel Committee on Banking Supervision on Credit Risk Assessment, which recommends banks to develop their own internal models in order to properly assess their clients. However, the National Bank of Ukraine has chosen another concept for the settlement of this recommendation, in particular, it developed and obliged all domestic banks to use their own methodology for assessing the level of credit risk based on a specific econometric model. Even before the full implementation of the methodology of the National Bank in practice of domestic banks, it was critically evaluated by domestic scientists with the details of deficiencies. The conducted study allowed to analyze the relationship between the introduction of the new NBU methodology for assessing the level of credit risk on corporate loans and changes in the share of non-performing loans in loan portfolios of Ukrainian banks. The obtained results confirmed the low effectiveness of the NBU methodology for identifying insolvent borrowers, as in the background of the growth of lending to legal entities in 2018, the share of non-performing loans was almost unchanged, or insignificantly, indicating that the newly issued loans subsequently went to the category of unemployed. The study summarizes the shortcomings of the current methodology and proposes to differentiate the approaches of banks to assessing the level of credit risk, namely, to allow banks with a long-term functioning in the market to develop and approve in the NBU their own methods for assessing the level of credit risk of the borrower, and for newly created banks – to use the methodology of the NBU until the moment of accumulation of the necessary experience to develop their own methodology.

The paper studies the place and degree of the monetary component's influence on the level of financial security of the state in the conditions of political and socio-economic imbalances in the development of Ukraine. The aim of the research is to investigate the effectiveness of monetary policy instruments, to determine the level of the monetary component's impact on the financial security of the state, as well as to form perspectives for balancing the symbiosis of "monetary policy and national financial security". Based on the conducted research, it is established that in recent years the role of the financial security system formation at all levels has significantly increased, whether it is macroeconomic security, the security of economical subjects, or the financial security of a household. At the same time, the monetary component plays a significant role in ensuring the financial security of the state, namely, it affects macroeconomic processes in the country. Therefore, in order to ensure macroeconomic stability and economic growth in the context of ensuring the financial security of Ukraine under martial law, it is necessary to improve the mechanisms of monetary policy. The article analyzes the latest threats that lead to the negative impact of the monetary component on the financial security of the state. These include: the consequences of russian military aggression on the economic development of Ukraine, continued COVID-19 outbreaks, the introduction of administrative restrictions on the use of monetary policy instruments by the National bank of Ukraine, violations of the economic security of financial institutions, an insufficient level of financial inclusion, and the contradictory nature of the coordination of monetary and fiscal policies. In the context of establishing the decisive role of the monetary component in ensuring the financial security of the state, the adopted development strategies at the level of national security of Ukraine and at the level of the monetary sector of Ukraine are considered and systematized. The block diagram of the implementation of monetary policy in the context of ensuring the financial security of the state is proposed. It is proved that the mechanism of such interrelationship is implemented through the instruments and methods of monetary policy in combination with key macroeconomic indicators. To confirm the proposed hypothesis, the econometric model of the influence of monetary instruments on the level of financial security of the state is developed. As a proxy indicator of the financial security of Ukraine, the Financial Stress Index is used, which reflects the current state of the financial sector (without considering future risks) and consists of sub-indices for the banking sector, households, government and corporate securities, and foreign exchange market. Estimated and re-estimated models made it possible to determine the most influential indicators of the monetary component of the Financial Stress Index, namely: consumer price index; producer price index; GDP to monetary aggregate M2 ratio; cash to GDP ratio; share of foreign currency in monetary aggregate M3; NBU key policy rate (annual average); share of non-performing loans (NPL). The proposed model can be used to forecast the influence of the parameters of the monetary component on the level of financial security of the state.Based on the results of the study, it is proved that, despite the difficult political and economic situation in Ukraine, it is necessary to focus on improving the coordination of monetary and fiscal policies, considering the further implementation of the main provisions of international documents adopted by International Monetary Fund on this issue.

The article examines the current state and development trends of the banking system of Ukraine under martial law. Key challenges affecting the level of financial stability are identified, in particular, the growth of credit risks, loss of assets, fluctuations in the foreign exchange market and a decrease in lending volumes. The role of the National Bank of Ukraine in maintaining the stability of the banking sector is analyzed, in particular through the implementation of monetary, macroprudential and regulatory instruments. Particular attention is paid to the issues of digital transformation, cyber security and the development of innovative financial technologies that increase the stability of the banking system. The purpose of the study is a comprehensive assessment of the state of financial stability of the banking system of Ukraine under military and post-war challenges, identification of key systemic risks and threats, as well as determination of priority areas for strengthening economic security and increasing the efficiency of the functioning of the banking sector. Research methods. The study used a complex of general scientific and special methods, in particular analysis and synthesis - to reveal the essence of the financial stability of the banking system; a systemic approach – to determine the relationship between financial stability, economic security and efficiency of the banking sector; a comparative method – to study the impact of military and post-war factors on the state of the banking system; as well as induction and deduction methods – to generalize the results and form directions for strengthening financial stability. The results. The analysis showed that the banking system of Ukraine, despite the military challenges, retains the ability to effectively perform its functions and maintain financial stability thanks to timely and comprehensive measures taken by the National Bank of Ukraine. It was established that the level of stability of the banking sector is determined by the effectiveness of the risk management system, the level of public trust in banking institutions, structural flexibility to crisis changes and the ability to quickly resume activities. The main directions for strengthening the financial stability of the banking system are proposed, including: expanding digital services and technologies, improving the regulatory framework, stimulating sustainable financing, and deepening cooperation with international financial institutions.

The study examined optimal strategies for managing banks’ loan portfolios during military conflicts, with an emphasis on comparing global practices with the Ukrainian experience. The paper analysed the specific risks faced by the banking sector during periods of war, particularly a substantial increase in the share of non-performing loans (NPLs), and evaluated approaches to their minimisation and management. The methodology was based on a comparative analysis of data from the Ukrainian banking system for 2013-2024 and the experiences of countries that have faced military conflicts, such as Syria, Iraq, Yugoslavia, and Yemen. Statistical data on the dynamics of NPLs, lending activities, and the impact of war on borrowers’ solvency were considered, and measures implemented by banks to reduce credit risks and ensure resilience have been analysed. The results of the study show that during the war in Ukraine, the share of NPLs reached 40%, substantially threatening the financial stability of the banking system. The comparative analysis confirms the importance of debt restructuring, tightening credit policies, effective risk management, and attracting international support to maintain banks’ liquidity during the crisis period. Moreover, Ukrainian banks have demonstrated their ability to adapt by implementing modern technologies for assessing creditworthiness, risk forecasting, and managing liquidity. The findings highlight the importance of government intervention in ensuring financial stability and using innovative solutions to effectively manage credit risks. Further research is recommended to focus on analysing the role of technological solutions and international support, and regulatory measures in restoring Ukraine’s financial system after the conflict ends

This paper reviews and assesses financial stability challenges in countries preparing for EU membership, i.e. Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia and Turkey. The paper mainly focuses on the period since 2016 (unless the analysis requires a longer time span) and on the banking sectors that dominate financial systems in this group of countries. For the Western Balkans, the paper analyses recent trends in financial intermediation, as well as the two main challenges that have been identified in the past. Asset quality continues to improve, but the share of non-performing loans is still high in some countries, while regulatory, legal and tax impediments are still to be resolved in most cases. High unofficial euroisation is a source of indirect credit risk for countries with their own national legal tender, which calls for continued efforts to promote the use of domestic currencies in the financial system. At the same time, banking systems seem less prone to financial stress from maturity mismatches than certain EU peers. These risks are met with a solid shock-absorbing capacity in the Western Balkans, as exemplified by robust capital and liquidity buffers. Turkey experienced a period of heightened financial stress during 2018 and, while its banking system appears to have sufficient buffers to absorb shocks overall, significant forex borrowing of corporates and high rollover needs of banks in foreign exchange on the wholesale market constitute considerable financial stability risks. JEL Classification: F31, F34, F36, G15, G21, G28

This article investigates different strategies for maintaining the financial stability of the country's banking system under any circumstances, conducting all banking activities in line with customer demands, and ensuring the stability of banks by tailoring financial stability measures to specific goals and objectives. Furthermore, the current approach to enhancing the financial stability of commercial banks involves analyzing the composition of their assets and liabilities, boosting banks' profitability, and promoting the adoption of efficient risk management practices. During the pursuit of these objectives, the author conducted research and obtained results.

The aim of the article is to theoretically substantiate the essence and characteristics of the financial stability of banks at macro and micro levels. From a theoretical perspective, it is proved that financial stability is declared as a priority direction of macroprudential policy for first-level banks – central banks – and as a dynamic characteristic of the functioning of second-level banking institutions. The generalization of existing theoretical approaches to understanding the essence of financial stability has allowed to allocate those that emphasize the manifestations of crisis phenomena, systemic risks, and signs of instability. It is specified that the prudential policy of the NBU focuses on financial stability and is based on the ability of the financial system to perform intermediation functions, prevent systemic risks, and potential and real crises. It is proposed to differentiate between the definitions of «financial stability of the banking system» and «financial stability of banks», and to outline the hierarchy and interdependence of these concepts. The financial stability of the banking system is a complex, dynamic characteristic of its condition, reflecting its capacity to resist real and potential crisis phenomena and threats, effectively perform accumulation, distribution, and redistribution functions, execute payments and settlements, positively affect transformational processes in the economy, counter systemic risks, and return to a state of equilibrium. The financial stability of a bank is its long-term ability to conduct traditional and innovative banking operations, mediate payments, fulfill its obligations, and generate a positive financial outcome while assessing risks from both the exogenous and endogenous environment. A conceptual scheme of the hierarchy of financial stability concepts of banks at macro and micro levels has been elaborated. It is clarified that financial stability manifests itself as a dynamic state of the stable development of financial institutions, financial markets, and financial infrastructure. The stability of financial institutions largely depends on the resilience of the banking and para-banking sectors. In turn, the stability of the banking system reflects the effectiveness of the activities of the National Bank of Ukraine and commercial banks. The financial resilience of commercial banks is the foundation for their stability, which in turn significantly determines the overall stability of the banking system. Further research should focus on the methodological tools for assessing financial stability at macro and micro levels using quantitative and qualitative indicators.

This study investigates the relationship between financial inclusion and financial stability in Zimbabwe over the period 2000–2020, with an emphasis on broader implications for economic development and livelihoods. The objective is to assess how efforts to enhance financial inclusion influence the stability of the banking system, which is critical for sustainable economic growth and improving livelihoods, particularly in marginalised communities. Using the Fully Modified Ordinary Least Squares (FMOLS) cointegration technique, the study analysed time series data on financial inclusion, financial stability, domestic credit, gross domestic product (GDP), and the size of the financial sector. The findings indicate a significant negative relationship between financial inclusion and financial stability, suggesting that increased financial inclusion adversely impacts bank system stability. Similarly, domestic credit exhibited a negative and significant relationship with financial stability. However, GDP and financial sector size positively and significantly contributed to financial stability, reinforcing their role in supporting inclusive economic development. These results underscore the complexities of balancing financial inclusion and stability within Zimbabwe’s financial sector. The study concludes that while expanding financial inclusion is essential for promoting access to financial services and advancing economic development and livelihoods, it poses risks to financial stability if not accompanied by appropriate risk management and regulatory measures. Factors such as relaxed lending standards, insufficient oversight of microfinance institutions, and reputational risks associated with outsourcing credit functions can exacerbate these challenges. The study concludes that expanding financial inclusion without robust regulatory oversight and risk management poses significant risks to banking stability and recommends a balanced policy approach that integrates technological innovation with stronger institutional frameworks to foster sustainable and inclusive growth.