THE BANKING SECTOR’S PERFORMANCE IN CONDITIONS OF UNCERTAINTY

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 article analyses the relationship between banking sector efficiency and economic growth using a panel data analysis of six South-eastern European countries during the period 1995–2005. The analysis is concentrated on the banking sector because other segments of the financial market are underdeveloped in our sample of countries. We measure the qualitative development in the banking sectors by using the margin between lending and deposit interest rates as well as the share of non-performing loans. By applying the panel data method in a growth-type equation setting, we confirm that improvements in banking sector efficiency, measured through the decreasing interest rate spread, exerted a positive influence on the growth rate of the countries in the region.

The Place of Non-performing Loans in the Turkish Banking Sector

The banking sector in 1H 2023. Purpose: The aim of the chapter is to analyse the results of the banking sector in the first half of 2023 and the conditions in which they were achieved. 1H 2023 was a very interesting period for the banking sector both in Poland and worldwide. In March 2023, the world could observe new cases of turbulence in the banking sector, with the most complicated cases occurring in the USA and Switzerland. Thanks to a rapid and deep reaction of different institutions responsible for the stability of the financial market, the negative consequences were rather limited and they were evidence of an unstable situation of individual banks. This wave of turbulence affected both smaller and bigger banks, and therefore it seemed important to indicate the main reasons for the last turbulences and to implement the right measures in order to avoid similar problems in the future. This experience delivered many new recommendations for banks and supervisors. It emphasised the significance of fully implementing the prudential measures set by the Basel Committee and applying these measures to all banks, not just those operating internationally. The turbulences in question highlighted the importance of effective supervision, strong risk management in banks, improved regulation of interest rate risk management, and consistent application of AT1 instruments worldwide. The disturbances have also reignited the debate about the scale of deposit guarantees and resolution mechanisms in the banking sector. Methodology: The author uses the method of analysing literature and data from the balance sheet and income statement of the banking sector in Poland. Findings: In Poland, the banking sector remained stable, with no new instances of turbulence detected. However, the economic conditions for the banking sector’s development were complicated. Real GDP growth was negative, market interest rates remained highand these factors limited the demand for credit from both the economy and households. In this situation the structure of bank assets has worsened. The share of credit portfolio has shrunk and the volume of treasure bonds in the bank assets has grown. Despite the unfavourable macroeconomic conditions, it shall be noted that the quality of the credit portfolio has not worsened. The higher interest rates allowed banks to generate higher profits. These profits were limited by the credit memorandum adopted by the Polish Parliament and high reserves set up in order to cover the risk concerning FX mortgage credits. Banks have had problems to increase the non-interest income. Higher nominal profits do not change a lot the general picture of the Polish banking sector. Its rentability remained low, but it was higher than in 2022. Looking at the results of the total European banking sector, it is necessary to conclude that the asset structure and credit quality in Poland is worse compared to the entire European sector. The share of credit in Poland’s total assets is lower, while the share of non-performing loans (NPLs) is higher than the average figures in the European banking sector. Additionally, the rentability of Polish banks also remained lower in comparison to the figures presented by the European banking sector.

The purpose of the article is to analyze and assess the level of nonperforming loans in the portfolio of the TOP-14 banks that are most actively lending to agriculture. It is substantiated that problem loans of banks should be considered as one of the most important indicators of the state of the economy. The balances of funds on non-performing loans in the total volume of bank loans provided to agriculture in 2023 were analyzed. The main banks – "collectors" of problem loans in agricultural lending have been identified. Banks with the smallest share of problem loans to agriculture are presented. The dynamics of the volume and share of non-performing loans in agriculture in the portfolio of banks included in the study sample is shown. The share of non-performing loans in agriculture in national and foreign currency in the portfolio of non-performing loans of the analyzed banks was determined. It is substantiated that state and most commercial banks prefer lending to agriculture mainly in the national currency. There is an increase in the share of non-performing loans in the whole banking system of Ukraine for the period 2018-2023. On the basis of statistical data, methodological approaches are proposed in the context of the work of banks with bad debts.

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.

Full-scale aggression and the introduction of martial law became a severe challenge to the banking sector's stability. In such conditions, the banks need qualitatively new approaches to ensuring and maintaining financial stability. The article defines the prerequisites and mechanisms for maintaining the stable financial condition of banks in conditions of the unfavorable influence of external factors. We have identified the trends of changes in the number of financial institutions and the main problems faced by banks that ceased their activities. Analysis of the dynamics and structure of banking sector assets showed an increase in the share of state banks in the market, which can be explained both by a specific reduction in the volume of activities of private banks and by the intensification of investment operations of state banks with state securities. The increase in the share of non-performing loans and the application of extension programs harmed banks' financial results. Banks' regulatory capital was sufficient to cover currency, credit, and operational risks. Despite the decrease in regulatory capital in the first half of 2022, the banking sector found resources for its gradual recovery in the second half of the year. According to the authors, the directions for maintaining the financial stability of the banking sector under martial law are: adequate prudential supervision aimed at identifying existing or potential vulnerabilities of the banking system, searching for effective risk management mechanisms, ensuring access to refinancing, maintaining competition in the banking sector; improvement of credit risk management, which involves a qualitative assessment of the potential amount of losses, identification of sources of their coverage, a balanced policy of debt restructuring and effective communication with borrowers; further expansion of the use of digital tools and service channels. An equally important direction is the involvement of banks in the recovery of the economy and the implementation of state and international stimulus programs.

Purpose. The aim of the article is to analyse of the financial stability of the banking system as a key indicator of the economic security of the state, which allows assessing the activities of the NBU to ensure the effectiveness of the economic security system. Methodology of research. The following research methods were used to achieve the goal: systemic economic analysis, which was used to assess the main indicators of the efficiency of the financial sector of the country's economy according to NBU data; data grouping method, used to assess the efficiency of the banking system; stress testing of the banking system was used when conducting scenario analyses to assess the impact of various shocks on financial stability. The study also used systemic and graphical methods to organize the initial data and final conclusions, as well as the generalization method to form the main results. Findings. The key tasks of the NBU to improve the efficiency of the financial sector in order to strengthen economic security were considered. It was established that their implementation will not only strengthen financial stability, but also create the necessary prerequisites for sustainable economic development and long-term economic security of the country. The dynamics of loans provided by deposit-taking corporations to non-financial corporations by currency, as well as the quality of the loan portfolio of Ukrainian banks (share of non-performing loans, NPL) for the period 2019 - 01.12.2024 were analysed, which allowed us to identify the main trends in the structure and stability of the banking sector. Changes in lending, the impact of the currency factor on the financial stability of borrowers, as well as the dynamics of the share of problem assets, which is an important indicator of the financial stability of the banking system and its ability to support economic development, were assessed. It is established that the banking system of Ukraine maintains a high level of liquidity, which contributes to financial stability and economic security of the state; high liquidity indicators allow banks to fulfil their obligations in a timely manner, reduce the risks of banking crises and maintain confidence in the financial system. It is substantiated that the use of modern approaches, such as stress testing or scenario analysis, makes it possible to assess the impact of possible shocks on the financial condition of banking institutions, to timely adapt the banking strategy to market conditions. It is proven that regular assessment of financial indicators of banking institutions is an important tool for ensuring the stability of the bank and protecting it from potential threats. Originality. The substantiation of integrating the financial stability of the banking system as a key indicator of the economic security of the state has been further developed, in particular through improving monitoring and risk management mechanisms, as well as developing new strategic initiatives of the NBU to strengthen the banking system in the face of modern challenges. Practical value. The results of the conducted research provide a deep understanding of the mechanisms for ensuring the financial stability of the banking system and its impact on the economic security of the state. In particular, the results allow improving the NBU's policy on banking stability, improving the quality of bank assets through stress tests and assessing the stability of banks. Reducing the share of non-performing loans, improving bank capitalization and implementing restructuring strategies will reduce systemic risks, increase confidence in financial institutions and ensure the stability of the banking system in conditions of economic instability. Key words: financial stability, economic security, banking system, National Bank of Ukraine, banking institutions, share of non-performing loans, liquidity, bank capital.

As non-performing loans (NPLs) can cause monetary crises that may turn into financial crises affecting an entire economy, monitoring them is very important. If NPLs are not identified and recognized efficiently, both in terms of speed and scope, NPL resolution effectiveness is undermined, which in turn will have negative effects on the banking sector and ultimately on GDP growth.The main aim of this article is to identify changes in the quality of bank loan portfolios in European Union (EU) countries in 2009–2021, using an example of the Visegrad Group (Czech Republic, Poland, Slovakia, Hungary) as well as France and Germany. Keeping in mind the fact that the share of loans to households in EU portfolios is approximately 60%, it has a significant impact on the share of non-performing loans (NPL) in a bank’s entire portfolio. Therefore, it is important to identify macroeconomic determinants influencing the creditworthiness of households and their loan servicing capacity.The specific aims are, first, to present the differences in NPLs, debt servicing costs, and the structure of loan portfolios in the selected EU countries. Second, to identify countries with high-quality portfolios and those undertaking restructuring. Thirdly, to examine the determinants of NPL for household loans based on the example of Poland, i.e., a country considered representative in terms of the average level of NPL and the portfolio structure in the group of countries studied.This chapter presents the changes of NPLs, debt service ratio, and household loans in selected EU countries in 2009–2021. Moreover, an NPLs econometric model for Poland is constructed, which considers the main factors determining the creditworthiness of households, i.e., macroeconomic factors, financial standing, and debt servicing costs. Tools such as the VECM model, the variance decomposition and the impulse response functions are used. The results for Poland confirm that the NPLs ratio for households was the strongest explanation of previous changes in own NPL, consumption and real wages in the household sector in 2009–2021.

The objective of this study is to compare the financial performance of the banking sector in some ex- Yu countries: Bosnia and Herzegovina, Croatia, Slovenia and Serbia for period from 2005 to 2010. Banking sector of Yugoslavia was strong but because of the weakness and the collapse all these characteristics disappeared. The financial performance of banks is study on the basis of some selected financial variables and ratios, such as return on asset, return on equity, capital adequacy ratio, share of non-performing loans in total loans, participation of deposits, assets and loans in Gross Domestic Product of the country. All of the indicators improved in period until the beginning of the global crisis, but with the first signs of crisis the conditions in entire economy worsen as well as the situation in the banking sector. Data show that banking system of these countries suffers from problems largely influenced by its huge debt to IMF, political situation, financial crisis, internal situation and other political factors. The authorities of banking system in selected countries took some measures in order to improve financial position and to slowdown the negative consequences of the global crisis. Keywords: Banks, ROA, ROE, Non-performing loans, Reforms, Crisis

The banking sector is one of the most important components of the financial sector. Starting on February 24, 2022, both businesses and ordinary citizens felt their dependence on hostilities, as the payment system was already under a heavy load in the first few days, which almost led to its collapse. The banking sector has received many challenges, the main of which are: a decrease in income relative to expenses, an increase in the share of non-performing loans, mass migration of people abroad, and the loss of part of the staff. The NBU and other subjects of the financial sphere create all the conditions for serving the economic and banking interests of the population and ensuring a high level of competitiveness of the banking sector. Looking at the situation today, the domestic banking system has undergone and is undergoing significant upheavals due to the fact that it has to "work" in conditions of uncertainty, but still banks fulfill their obligations and comply with regulations. However, we can also observe certain transformational processes, such as: implementation of the Power Banking project (a perimeter built on the basis of regular bank branches that will provide financial services to clients in conditions of a long-term lack of power supply); uninterrupted operation of the contact centers of the National Bank is organized; new functions have been added to the BankID system, which enables financial sector entities to solve their problems a little easier and faster, etc. The article is devoted to highlighting the main problems of the functioning of the banking system of Ukraine in the conditions of a special state. The importance of the study lies in the need for urgent implementation of measures that will contribute to reducing the risks of the financial system and banks as a whole to a possible minimum.

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 purpose of the article is to study the current state of assessment and management of credit risk of banks, analysis of the regulatory framework governing credit risk management and the formation of reserves for active operations, as well as identifying ways to stimulate credit activity of banks in modern conditions. The main factors of credit risk by types of credit risks are presented. Particular attention is paid to individual and portfolio credit risk. The types of active operations on which determine the credit risk are defined. The general essence of commercial risk and directly credit risk of commercial banks is considered. Situations which can promote occurrence of credit risks in commercial banks are considered, and also methods and strategy of management by risks of commercial banks are developed. The article considers theoretical issues regarding the content and assessment of credit risk of the bank. The types of credit risk are identified and the characteristics of each of them are given. The complexity of the implementation and maintenance of such management systems is inversely proportional to the efficiency of the use of bank capital, that is, the more complex the method of calculating the risk – the less capital to be deducted on it. When calculating credit risk, the bank consolidates financial assets in accordance with the regulatory act - "Regulations on the determination of credit risk by banks of Ukraine for active banking operations." Indicators of EL, PD, LGD, EAD are assessed, which assess credit risk according to the regulations. The dynamics of credit risk standards of the banking system of Ukraine for 2009-2019 is considered. Statistics show that in 2019, almost all indicators of the loan portfolio are non-performing loans. Non-performing loans are loans that are doubtful or uncollectible until repayment. The quality of the loan portfolio with such a share of non-performing loans is a factor of inhibition and systemic risk. The calculations presented in the article show that state banks have the greatest credit risk, the share of non-performing loans does not decrease, even to 60%. Banks with a state share, not including Privatbank, are trying to reduce the level of lending risks. Recommendations for minimizing banking risk in financial activities are given.

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.

In this article we show—using the estimated cost efficiency of banks—that besides the risk (proxied by the share of non-performing loans), the quality of operational cost management was an equally important determinant of bank failure risk during the decade of banking sector transformation in the Czech Republic.