Abstract
The paper aims to develop scientific and methodological approach to assessing the interaction of nonperforming loans of Ukrainian banking institutions, the profitability of the banking sector and its financial stability, which will allow a more detailed assessment of the directions and degree of mutual influence of these elements. To substantiate this interaction economically and mathematically, structural equation modeling was chosen. Particularly, Statistica was chosen as a software tool to assess the adequacy of the resulting model and determine the level of statistical significance of its parameters. Six key indicators were selected as a research information base, two for each subject of research: indicators of nonperforming loans in the banking sector (the volume of nonperforming loans and the ratio of problem loans excluding capital reserves), profitability indicators of the Ukrainian banking sector (assets profit and rate of return on capital), and indicators of financial stability of the Ukrainian banking sector (regulatory capital-to-risk-weighted assets ratio and liquid assets-to-total assets ratio). For calculations, statistic data of selected indicators for 2005–2019 were used. As a result of calculations, mathematical data were obtained that accurately described the interaction of nonperforming loans of Ukrainian banking institutions, the profitability of the banking sector and its financial stability. The adequacy of the model was verified based on the following criteria: main summary statistics (ICSF criterion, ICS criterion, discrepancy function, maximum residual cosine), noncentrality fit indices (noncentrality parameter, population noncentrality parameter, Steiger-Lind RMSEA index, McDonald noncentrality index, adjusted population Gamma index), other single sample indices (Akaike information criterion, Schwarz criterion), and a normal probability plot.
Highlights
Given the negative impact of 2014–2015 economic crisis on the activity of banks in Ukraine, the tendency to lower quality of their loan portfolios is of particular interest
A system of structural equations, which reflects the relationship between the financial stability of the Ukrainian banking sector, its profitability and nonperforming loans, is given in formula (2)
With a 1% increase in nonperforming loans of Ukrainian banking institutions (NPL)’s.E.R, we get a dete- The study of the relationship between the developrioration in nonperforming loans of Ukrainian ment of the stock market, the activities of deposibanking institutions by 1%
Summary
Given the negative impact of 2014–2015 economic crisis on the activity of banks in Ukraine, the tendency to lower quality of their loan portfolios is of particular interest. (2010), the Greek scholars, conducted an interesting study in which they explored the dynamics of non- Tsyhanov and Pobocha (2003) and Oliinyk and performing loans over the period 2003Q1–2009Q3 Volovnik (2016) conducted similar studies, and their relationship with key macroeconomic in- at different time periods, and obtained identical redicators They found that growth in real GDP, unem- sults: a rapid increase in the share of nonperforming ployment and lending rates negatively affected the loans in the banks’ loan portfolio causes significant volume of credit payments and led to an increase in deductions to reserves to cover losses on credit opernonperforming loans.
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