Foreign Banking Groups Research Articles

RESOURCE POTENTIAL OF COMMERCIAL BANKS AS AN INDICATOR OF FINANCIAL STABILITY AND RELIABILITY OF THE BANKING INDUSTRY IN THE CONTEXT OF EXTERNAL IMBALANCES

An effective system of managing the bank’s resource potential is one of the main conditions for stable functioning and ensuring competitive advantages in the market of banking services. The size and structure of the bank’s resource potential are influenced by factors of the market environment, which are manifested as economic, political, legal, social, technological opportunities and threats to the development of the bank. It is obvious that due to changes in the regulation of banking activity, changes in macro- and microeconomic dynamics, fluctuations in the money market situation, structural fluctuations in corporate and personal incomes, etc., the resource base for the formation of commercial banks is not stable. The paper examines and characterizes the economic essence and necessity of managing the resource potential of a commercial bank. The composition and structure of the resources of banking institutions by groups of state banks, banks of foreign banking groups and banks with private capital was analyzed, the effectiveness of resource portfolio management before the start of a full-scale Russian invasion and in war conditions was evaluated. The main methods of research were: the method of theoretical generalizations, the method of analysis, the tabular and graphical method, the method of comparison, abstract-logical methods. The theoretical and practical results of the research consist in developing recommendations for improving the efficiency of the commercial bank’s resource management in conditions of global imbalances, uncertainty and a full-scale Russian invasion of the territory of Ukraine. The issue of formation and effective management of the resource potential of banking institutions remains relevant, optimization of the structure and selection of the resource portfolio management strategy is especially in demand in the modern conditions of scarcity of bank resources. The stability and further growth of the investment activity of commercial banks depends on the growth and strengthening of the resource potential, and currently – the support of stable work during the war period.

ТЕНДЕНЦІЇ РОЗВИТКУ БАНКІВСЬКОЇ СИСТЕМИ УКРАЇНИ У 2023 РОЦІ

In 2023, Ukraine continues the war with the aggressor that began in February 2022. In this context, it is important to understand the state of the banking system as one of the main guarantees of the country's financial stability during the war and to identify trends in its further development. In order to identify the main trends that are inherent in the further development of the banking system in these conditions, it is necessary to analyze its current state. To do this, it is quite effective to study current statistical data (analysis of the dynamics of changes in key indicators, identification of the causes of their fluctuations, etc.), which highlight the activities of domestic banks in its various aspects and affect the overall level of development of the banking system. Thus, today it is appropriate and expedient to analyze the current state of the banking system of Ukraine, its peculiarities of functioning in the conditions of the war waged in the country. Thus, the relevance of the study is beyond doubt, and the topic is extremely important today. The purpose of the study is to analyze the state of performance indicators of the banking system of Ukraine by groups of banks for 9 months of 2023 and to identify trends in its further development. To achieve this goal, the author studied the existing structure of the banking system of Ukraine for 9 months of 2023 and analyzed its state for the same period. The research was based on the use of various general and specific scientific methods, namely: analysis, synthesis, induction, deduction, abstraction, generalization, economic, mathematical and statistical methods, etc. The key financial indicators of the modern domestic banking system are analyzed. It is established that since 2017, the National Bank of Ukraine has been using the following groups to analyze the activities of the banking system of Ukraine: banks with a state share, banks of foreign banking groups, and banks with private capital. The study found that the banking system is generally profitable, with its performance indicators most influenced by the performance of two groups of banks: state-owned banks and banks of foreign banking groups. The analysis also shows a positive trend towards an increase in the level of solvency of the banking system in the face of the aggressor. The author concludes that the NBU's policy is balanced and that the management of banking institutions is effective in the context of war.

EFFICIENCY OF THE ACTIVITIES OF BANKING INSTITUTIONS IN UKRAINE

Introduction. The article examines statistical data on the number of banks that have a banking license, banks with foreign capital and the dynamics of the influence of foreign capital on the Ukrainian banking system in 2010–2021. The analysis of the dynamics of bank assets and liabilities and the share of bank assets in the gross domestic product is carried out of Ukraine in 2010–2021. The structure of ownership of the assets of the banking system, the dynamics of income, expenses, financial results, return on assets (ROA) and return on capital (ROE) of banks of Ukraine were studied. The conclusions regarding the current state and efficiency of operations were substantiated banks in 2010–2021. The purpose of the article is to analyze the efficiency of banking institutions in Ukraine in 2010–2021, to assess the capital concentration of the Ukrainian banking system and to substantiate the directions for increasing the efficiency of the functioning of the Ukrainian banking sector in modern conditions. Methods. Statistical methods, methods of techno-economic and financial analysis and observation are used to study development trends, the current state of functioning of the banking system of Ukraine. Statistical and graphic methods are used for processing and generalization of statistical data and their display in tables and figures. On the basis of the dialectical method of cognition, the ownership structure of the banking system, the dynamics of income, expenses, financial results, return on assets (ROA) and return on capital (ROE) of Ukrainian banks are summarized. The system method was used when studying the level of concentration of the banking system. Results. The study of trends in the development of the main indicators of banks' activity in Ukraine shows that during the analyzed period the number of commercial banks systematically decreased. At the same time, during the same period, the value of assets and liabilities of the banking sector increased. Banks occupy the leading place in the financial services market of Ukraine. However, for the modern banking system, there is a noticeable tendency towards a gradual decrease in the share of bank assets in GDP. In the analyzed period, the ownership structure of the banking system underwent significant regrouping in the groups of banks with a state share, banks of foreign banking groups, and banks with private capital. As a result of the transfer in 2016 of the system JSC CB “Pryvatbank” to 100% ownership of the state, the share of state banks in the structure of assets of the banking system has increased significantly. The banking market of Ukraine is concentrated, as evidenced by the values of the share of the largest bank in net assets (CR1), the five largest banks in net assets (CR5), the ten largest banks in net assets (CR10), the largest twenty banks in net assets ( CR20) and the Herfindahl-Hirschman index (HHI). The volume of non-performing loans (NPL) in Ukrainian banks was considered. Conclusions. Today, the banking sector has successfully adapted to work in the conditions of a pandemic and martial law and is properly performing its functions, supporting the economy. According to the results of recent years, the banking sector has been making profits. The profitability of assets and capital of the banking sector is growing. Increasing the efficiency of Ukrainian banks through cost reduction, the search for new sources of income, mainly commissions, through expanding the areas of interaction between banks and clients, in particular remote banking services, the use of modern innovations, financial technologies requires further scientific research.

Development of integrated marketing Internet communications in the activity of Ukrainian banks

In modern conditions the Internet is developing rapidly. Marketing communications on the Internet is one of the main elements of Internet marketing of banking institutions and an important element in establishing relationships with target audiences and managing them, informing customers, improving the image of the bank. It is determined that the Internet today covers the information, communication and logistics areas of marketing communications of banks. The paper identifies the areas of integrated marketing Internet-communications in the activities of banks and their main elements to present their characteristic. At the present stage of development of Internet-communications in activities banking, it is advisable for banking institutions to use advertising, digital and creative strategies. It was found that the current trends in the development of marketing communications on the Internet also indicate the growth of Internet-communications in social networks as an important mechanism for interesting the bank customers and forming interaction with them and the development by the bank of its website, its attractive design, updating information on it. The results of the study showed that the largest share of Internet users in Ukraine uses mobile phones or smartphones, the number of which is growing, which expands the capabilities of banks in the field of Internet-communications. It was established that the most active banks in the media space are banks with state share: JSC CB «PrivatBank», JSC «Oschadbank», JSC «Ukreximbank» and banks of foreign banking groups such as JSC «Raiffeisen Bank Aval», JSC «OTP BANK», JSC «ALFA-BANK». JSC «FUIB» is among the banks with private capital. At the same time, the largest media activity of banks in 2019 was observed in banks of foreign banking groups, and in 2019, 2021 by the number of messages in state-owned banks. The analysis of the collected marketing information showed that the largest number of messages from the leading banks of Ukraine by categories of media was observed in the Internet media, as the Internet is a convenient, cheap and effective communication channel in all areas activities. The expediency of using the Internet to promote banking products is also due to the fact that recently the effectiveness of traditional channels for disseminating information about banks and their products has decreased. Key words: integrated Internet-marketing communications, banks, Internet marketing, mediaactivity of banks, means of information dissemination

Improving Approach to Conditions’ Statistical Assessment for Ukraine Banking Sector Competitive Development Under the Foreign Banks Presence in the Financial Market

It is substantiated that most of the existing methods and models for assessing the development of the banking sector of the economy do not take into account the competitive conditions for banks of different groups – with national capital and foreign banking groups. This determines the relevance of the study to improve the methodical approach to statistical assessment of competitive conditions in the development of the banking sector in the presence of foreign banks in the financial market.The scientific work proposes to assess the competitive conditions in the banking sector, in particular those created for domestic banks under the influence of foreign presence, by the level of the coefficient of competitive internalization. Eight gradations of the coefficient level were established by the expert method.Due to the use of mathematical calculation method and official statistics, it was found that the level of competitive internalization in the banking sector of Ukraine over the past decade is mostly dangerous, with a tendency to deteriorate. The coefficients of competitive internalization for the banking sectors of the Commonwealth of Independent States and the European Union have been calculated. It is determined that the level of influence of foreign banks in the banking sector of Ukraine can be compared with the conditions of competitive development of national banks of Moldova and Slovenia. The use of competitive internalization coefficient in practice as a statistical data will create a basis for determining the direction of integration processes. We are convinced that the integration of Ukrainian banks into the banking sector of Moldova or Slovenia is possible.

Оцінювання надійності банків України за рейтинговою методикою В. Кромонова

Assessment of the reliability of banks and their rating is a relevant issue for all participants of the financial market. Taking into account the fact that a methodology should be based on the availability of information data, clarity and openness of the algorithm, and a limited number of analyzed indicators, the authors, for assessing the reliability of the banking system of Ukraine in separate banking groups, chose the most popular methodology of V. Kromonov. The article contains the results of assessment of V. Kromonov's rating model indicators for the period 01.01.2017–01.06.2021 for the banking system of Ukraine in general, as well as for the group of banks with the State-owned share, banks of foreign banking groups and banks with private capital. It is identified that the level of reliability of the banking system of both Ukraine and banking groups is in poor condition, since the calculated values of integral reliability coefficients do not exceed the value of 30 points, which indicates the presence of significant problems in the functioning of the banking market, imbalance of assets and liabilities, low level of solvency of banks and same for liquidity of assets. A comparative characterization showed that the reliability of Ukrainian banks with the State-owned share is significantly inferior to the reliability of banks of foreign banking groups and banks with private capital. It is determined that the amount of equity of the banking system of Ukraine is not sufficient to repay possible losses in case of non-return or return in an impairment form of a working asset. A computation of liquidity coefficients showed a tendency to reduce the level of coverage of liabilities by liquid assets of banking institutions, to reduce the solvency of the banking system and worsen the ability of banks to fulfill their obligations. Improving their reliability should be one of the primary strategic tasks of all banks.

A comprehensive approach to assessing the level of economic security of Ukrainian banks

Existing methodological approaches to assessing the level of economic security of Ukrainian banks are revealed and the need to improve them is substantiated. The author proposes the method of determining the level of economic security of banks at the micro level. Estimated values of economic security indicators and their assessment in points made it possible to group institutions by the level of economic security and to determine the positioning of banks depending on ownership. Institutions with a high level of economic security include banks, which, according to 8 indicators, have accumulated a total number of 61 to 80 points. A satisfactory level of economic security is characteristic of banks, whose quantitative assessment for a certain amount of indicators ranges from 41 to 60 points. Low levels of economic security are inherent in institutions with an overall score of 21-40. Institutions with a critical level of security include banks with a total score of up to 20 points, whose activities are accompanied by violations of indicator values and destabilizing effects on the banking system. The validation of this methodology was carried out in all solvent banks of Ukraine, which operated in 2015 and 2019. Based on the grouping of institutions by the level of economic security, the threats and dangers that accompanied the activities of banks were identified. The main threats to the economic security of state-owned banks were: the highest share of problem loans in the aggregate loan portfolio, risk of operating activities, reduction of their lending activity. Institutions of foreign banking groups were largely characterized by high, satisfactory, and low levels of economic security. This methodological toolkit is suggested to be used to strengthen the market position and increase the security of the functioning of Ukrainian banks.

BANKS WITH FOREIGN CAPITAL IN UKRAINE: CONTROVERSIES AND PROSPECTS OF DEVELOPMENT

Introduction. Existence in the national economies of banks of foreign banking groups is today a form of financial globalization. The Ukrainian banking system is not an exception. Banks with foreign capital have a considerable influence on the domestic banking system and cause a complex of qualitative changes in it. The consequences of the presence of a significant proportion of foreign-owned banks in the domestic market are quite ambiguous: on the one hand, they contribute to the financial development of the country, and on the other – to conceal certain threats. Under these conditions, the issue of researching the activity of foreign banks in the banking system of Ukraine and identifying prospects for its development becomes highly relevant. Subject. Identification of peculiarities of functioning of banks with foreign capital in Ukraine, as well as influence on the development of the domestic banking system. Goal. Assessment of actual indicators of the presence of foreign capital, analysis of its impact on the formation and development of the domestic banking system, as well as identifying directions for improving the efficiency of banks in Ukraine. Method. The basis of the work was systematic and comparative approaches, which allowed to comprehensively consider the problem in the unity of all components of significant characteristics. The study used the following methods: comparative and statistical analyzes, the method of generalization, the relationship of quantitative and qualitative changes – to analyze the state of the banking system; induction and deduction, analysis and synthesis – in the study of practical results of foreign banks; historical method and method of generalization – in the study of key trends in the development of the banks with foreign capital. Scope. The practical value of the obtained results is determined by well-grounded conclusions about the impact of foreign-owned banks on the formation and development of the banking system of Ukraine and methodological recommendations for improving the efficiency of the banking system by implementing innovative solutions in its activities. Results. The actual indicators of the presence of foreign capital during the crisis and after the crisis are analyzed. The peculiarities of the development of foreign banks in Ukraine are revealed. The effects of the presence of foreign capital in the banking system have been determined. The directions of increasing the efficiency of the banking system in the conditions of uncertainty and rapid changes are suggested.

Determining the level of bank connectivity for combating money laundering, terrorist financing and proliferation of weapons of mass destruction

The study aims at developing an approach to determining the bank connectivity level. This will contribute to implementing a risk-oriented approach to counteracting money laundering, terrorist financing and the proliferation of mass destruction weapons. The article proposes to assess the degree of bank connectivity and determine the impact of these circumstances on money laundering risk using banks from foreign banking groups, whose capital share in the Ukrainian banking system amounts to more than 40 percent. Using the resulting correlation dependencies, two-dimensional binary matrices were constructed, which became the basis for creating graphs of links between banks. The institutions under study are found to be predominantly connected in terms of their sets (varieties), since the average proportion of banks with close direct links is over half, and the non-connectivity coefficient for them is about 40%. Each surveyed bank, on average, has direct links with eight other banks and inverse links with four other banks. Considering banks as tops of the graph, one can assume that there is a hidden relationship between some banks. This approach allows calculating all existing relationships between banks to assess risk. Transforming the graph from non-oriented to oriented made it possible to identify and clearly demonstrate possible directions of links between the investigated financial institutions, which should be further verified to determine the risk of money laundering, terrorist financing, etc.

ВПЛИВ ІНОЗЕМНОГО КАПІТАЛУ НА БАНКІВСЬКУ СИСТЕМУ УКРАЇНИ В УМОВАХ ГЛОБАЛІЗАЦІЇ

Formulation of the problem. In the last five years the number of insolvent banking institutions was reduced, however, the percentage of banks with foreign capital in the total number of banks was increased, which may affect the banking system stability and require a research of the positive and negative effects of foreign banks on Ukraine banking system. The aim of the research is analizing trends of the foreign capital presence in Ukraine banking sector and determination its positive and negative impact on Ukraine banking system. The subject of the research is the activity of foreign banks in Ukraine. The methods of the research: logical and meaningful method, method of comparison, methods of induction and deduction, etc. The hypothesis of the research. Existence of significant influence of foreign capital on Ukraine banking system. The statement of basic materials. The main tendencies of development of Ukrainian banks and place in ratings of state-owned banks and banks of foreign banking groups are analyzed. It has been found that according to different ratings, banks of foreign banking groups occupy the first leading five positions in the rating, while banks with state-owned shares occupy mostly middle positions. The positive and negative influence of the presence of foreign banks in the territory of Ukraine on the banking system of Ukraine is analyzed. The originality and practical significance of the research is determination the positive and negative impact of foreign capital banks on Ukraine banking system. Conclusions and perspectives of further research. Positive and negative influence of presence of foreign capital banks on the Ukraine banking system is analyzed, which is the basis for further research, in which it is planned to quantify the power of influence of individual banks with foreign capital on Ukraine banking system development, to determine the effectiveness of attracting foreign banking capital in Ukraine, to form a mechanism for admission of banks with foreign capital to the domestic banking services market.

РИЗИКИ ЕКСПАНСІЇ ІНОЗЕМНОГО КАПІТАЛУ НА ВІТЧИЗНЯНИЙ ФІНАНСОВИЙ РИНОК

Oбґрунтовано необхідність аналізу та оцінки ризиків експансії іноземного капіталу за умов приділення уваги оцінці ризиків, ураховуючи поведінкові фактори в умовах нестабільної політичної та економічної ситуації України. Розглянуто підходи до класифікації термінів «міжнародна банківська група», «іноземна банківська група» та «іноземний банк» з позиції вітчизняного законодавства і встановлено їхню відмінність. Експансію іноземних банків на фінансовий ринок України доцільно розглядати як з позиції виявлення позитивних наслідків цього процесу, так і щодо оцінки ризиків для безпеки розвитку вітчизняної банківської системи. Проведено порівняльну характеристику вітчизняних та іноземних банківських груп за показниками рентабельності та визначено розмір загального банківського ризику. Запропоновано причинно-наслідкові зв’язки виникнення ризиків експансії іноземного капіталу на вітчизняний фінансовий ринок і розглянуто ФінТех-технології як перспективний напрям співпраці між ФінТех-фірмами і банками, що сприятиме прозорості ведення діяльності іноземного і вітчизняного банківського бізнесу. Встановлено, що з метою підвищення стабільності вітчизняної фінансово-банківської системи основні сили Національного банку України повинні бути покладені на врівноваження експорту та імпорту банківських продуктів, що відобразиться на зниженні ризикованості як вітчизняних, так і іноземних банківських установ на фінансовому ринку України.

Тенденції розвитку регіональної мережі банківських відділень в Україні

Розвиток банківського бізнесу, як складної динамічної системи, пов'язаний з розвитком філійної мережі банків. З огляду на це, важливого значення набуває розроблення напрямів iннoвацiйнoго розвитку мережі банківських відділень, спрямованих на забезпечення очікуваних результатів та підвищення ефективності їх діяльності, яку дедалі складніше забезпечити в умовах активного впровадження інноваційних систем дистанційного банківського обслуговування та стрімкого розвитку небанківських фінансових установ. Визначено важливість розвитку регіональної мережі банків, розглянуто тенденції розвитку банківських відділень в Україні. Проаналізовано динаміку зміни відділень банку протягом останніх 9 років. Обґрунтовано причини, через які банки закривають мережі відділень. З'ясовано тенденції в банківській системі України щодо згортання та розширення мережі відділень. Проаналізовано динаміку змін у структурі відділень банків із державною часткою, банків іноземних банківських груп та банків із приватним капіталом. Встановлено, що характерною ознакою для банківської системи України є асиметричність її територіальної структури, тому досліджено розміщення банківських відділень по регіонах України. Обґрунтовано причини закриття та розширення мережі відділень банків. Запропоновано напрями з удосконалення роботи мережі банківських відділень.

Evaluation of profit efficiency of Ukrainian banks on the base of SFA models

The article analyzes the profit efficiency of the Ukrainian banks by means of a constructed model of stochastic efficiency frontier on the basis of intermediary approach. For constructing of the trans-logarithmic function for the efficiency frontier, the concept of alternative profit efficiency was applied. We used the value of fixed assets, labor costs, the cost of loan capital as input variables, whereas output variables were: issued loans, other assets and total costs. The analysis of the profit efficiency of the Ukrainian banks in 2015 and 2016 pointed out to a number of serious problems in the domestic banking sector. Primarily, the system’s average efficiency in general was quite low and constituted only 0.31. Of particular concern is actually the zero efficiency of the Ukrainian state-owned banks. In contrast to the latter and subsidiaries of foreign banking groups the Ukrainian banks with private capital have showed a slightly higher level of profitability over the analyzed period.

Evaluation of banks’ foreign banking groups financial condition in Ukraine

The article explored and analyzed the banks' activities of foreign banking groups in 2013-2015 on a number of absolute and relative indicators, which allowed to determine their place in the banking system of Ukraine and evaluate the effectiveness of their activities. Also the ratings of banks of foreign banking groups in Ukraine's banking are compared on the basis of information from official sources, and their impact in the banking sector in Ukraine is identified

Banking Supervision and Evaluation with Camels. A Case Study in Kosovo

Since the political and economic changes that happened in Kosovo in 2000 has begun the process of creating a financial system and especially of a banking system based on market principles. The focus was mostly the market liberalization with the aim to approach the banks and foreign banking groups which was expected to bring experience and capital in the banking system. Now, after one and a half decade, the banking system in Kosovo has taken his form and has faced many important problems and challenges. The last bank financial crisis which began in USA as an mortgage crisis in 2007 has touched the banking system in Kosovo. This crisis, which came to Europe in 2008 has also affected Kosovo that year and the consequences continue even today. It should be noted that the international crisis did not bring problems in the banking market in Kosovo. In fact it just revealed the problems that existed, but not appeared yet. The rapid growth of non-performing loans at double-digit levels, up to 25%, did not come from crisis as much as from poor management of the lending process, in the years before the crisis. The knowing state of the banks and the impact to prompt them towards less risky methods and practices remains a challenge of a supervisor. In this paper we will focus precisely with this issue. Analyzing the rating system CAMELS we will illustrate its use for one bank of banking system. The goal is to mention the practical problems that this rating system reaches to identify in order to provide recommendations that would deem valid for more effective supervision.

Determinants of Credit Growth: The Case of Montenegro

Abstract In the period before the crisis, Montenegro experienced a rapid credit growth, which coincided with the privatization of several banks and was followed by the entry of foreign banking groups, amplifying the banks’ lending process and increasing competition in this sector. This paper focuses on identification and estimation of determinants of credit growth in Montenegro, exploring both demand and supply side factors, and particularly paying attention to supply factors. Our findings confirm that positive economic developments and an increase in banks’ deposit potential lead to higher credit growth. Furthermore, our findings emphasize that the banking system soundness is decisive for promoting further bank’s lending activities. We provide evidence that the weakening of banks’ balance sheets, in terms of high non-performing loans and low solvency ratio, has a negative effect on credit supply. In addition, this paper provides a nuanced analysis of the determinants of credit growth by allowing these to be different before and after the global financial crisis. The post-crisis model finds that credit supply indicators gained in importance in explaining credit growth, while the model in pre-crisis period provides evidence that both demand and supply indicators matter in explaining credit growth.

Overview of Financial Contagion Channels in the Banking Sector of the Baltic States

This article aims to determine and analyse the main features of channels of financial contagion in the banking sector of Baltic States. The most relevant channels seem to be the risk of common lender, the channel of real estate prices the channel of other macroeconomic shocks and the channel of volatility. This paper contributes to the further analysis of internal and external causes of financial crisis and its transmission channels in banking sector in Baltic States.Purpose To indicate and explain main problems related to the systemic risk and the channels of financial contagion in the banking sector of Baltic States.Design/methodology/approach – general overview of research papers presenting concepts and methodologies of assessment of systemic risk of the banking sector, statistical analysis of financial data.Findings determination of the main channels and extent of financial contagion that are relevant to banking sector of Baltic States.Research limitations/implications – the lack of information concerning the liquidity and asset structure of banking sector of Baltic States and the real estate prices in Baltic States. The most common problem analysing the financial contagion and systemic risk is the lack of information (especially about the structure of liabilities and assets of financial institutions, its maturity) and the changing new banking regulatory conditions. Due the lack of data it is impossible to create stable and reliable statistical models describing the stochastic behaviour of financial contagion. We do not take into account the political factors concerning the reforms of financial market supervision that have also the impact on financial contagion and systemic risk ant the point of view to Baltic States of foreign investors. The findings of this article should ground the macro-prudential policy in the small countries of supervising institutions focussing on the external factors.Practical implications – identification of the channels of external and internal negative shocks to the banking sector of Baltic States; useful not only for the banking executives providing business trends and officers of supervising institutions that should use not only Basel III requirements, identifying potential sources of risk in the near future, but for the rest part of society, both ordinary citizens and entrepreneurs having current accounts and deposits in banks.Originality/Value – modelling of systemic risk and analysis of instability causes of the banking sector applying reliable quantitative methods in Lithuania are not sufficiently developed and is impossible without knowing the mechanisms of transitions of external and internal shocks on banking sector. Researchers have provided an exhaustive analysis of contagion and channels of contagion in global extent or in another cases and regions. The banking sectors of the Baltic States are essentially controlled by the same foreign banking groups, so the international financial groups' liquidity problems could spill over to other banks in the Baltic States. This case is not exhaustively analysed by other researchers. This paper is one of the first attempts to describe and assess quantitatively the financial contagion in Baltic Stats. The deep dependence of banking institutions in the Baltic States on their investors means not only the simple attraction of capital flows but additional risk that can arise due to the lack of liquidity or panics of patronizing financial institutions. The findings of this article should ground the macro-prudential policy focussing on the external factors.Research type: literature review, general review.

Modelling of Systemic Risk of Banking Sector

Purpose – to evaluate the general networking and simulation approaches of modelling of systemic risk and the financial contagion and their ability to assess the banking sector resilience in the case of external economic shocks and collapse of idiosyncratic financial institutions.Design/methodology/approach – a general overview of research papers presenting concepts and methodologies of assessment of systemic risk of the banking sector.Findings – limitations of the networking approach and possible ways to improve modelling of systemic risk. The network approach cannot explain the causes of initial default of bank. On the other hand, assumptions made on LGD and interbank exposures are very strong. These features are important limitations of network and simulation approaches.Research limitations/implications – the application of reviewed methods in the case of Lithuanian banking sector falls, however, due to the lack of exhaustive data. On the other hand, until now, applied methods for systemic risk due to the lack of data have been limited. Also, because of this reason, there are difficulties to create adequate dynamic assessment for systemic risk models. Therefore, in assessing systemic risk of the banking sector, the same problem remains: is it possible to parameterize the financial crisis, its spread and speed and other characteristics according to quantitative methods. Knowing the liquidity, credit risk and other standards set in Basel Accords, it is also not enough to properly manage the systemic risk of the whole banking sector because for the proper activity of the banking sector not only characteristics related to capital requirements have influence on it, but also external (mostly the macroeconomic, political) factors.Practical implications – determination of the explicit connection based on quantitative methods determining the systemic risk of the banking sector would be exact and objective assessment and useful not only for the banking executives providing business trends, identifying potential sources of risk in the near future, but also for the rest part of society, both ordinary citizens and entrepreneurs with current accounts and deposits in banks.Originality/value – in essence, modelling of the systemic risk and analysis of instability causes of the banking sector applying reliable quantitative methods in Lithuania are not sufficiently developed. Researchers in other countries have established that a high threat of systemic risk is concentrated in the interbank market; many researches have been done to assess this risk, however, problems related to assessment of systemic risk and application of models always occur. The most common problem is the lack of information and assumptions, and constantly changing economic environment: emerging (or which may arise) new types of transactions, the new banking regulatory conditions and other financial innovations. First, whether the country’s banking business is so dependent on each other to create the threat of the systemic risk between banks’ assets and liabilities. Second, the banking sectors of the Baltic states are essentially controlled by large foreign banking groups, so there is no doubt that the international financial groups’ liquidity problems could spill over to other banks in the Baltic states. On the other hand, a question remains essentially and completely unexplored: how and why such problems could spill over in the Baltic Sea region countries? Also, little attention has been paid to the reliability of interbank payment systems and to the analysis of this object as a potential source of systemic risk.Research type: literature review, general review.

Policy measures and failures on foreign currency household lending in central and eastern Europe

I found that during booming years national policy makers were strongly constrained to decrease or effectively manage the risks of unhedged foreign currency lending (FCL) to households due to the economic characteristics of Central and Eastern Europe (CEE). Strong FCL growth was mainly driven by private sector consumption and investment. Foreign banking groups easily intermediated international financing into open CEE markets. International measures, which could have limited FCL, were not taken. I found an inconsistency: FCL was primarily a result of macroeconomic imbalances, but macroeconomic policies mostly proved inefficient to downsize it. Administrative measures seemed to be the most effective, however, only for a short period due to the high degree of financial liberalisation. Regulatory measures proved less efficient, while relatively frequently used supervisory actions did not have any notable effects. Financial education, moral suasion, and market development measures (with the exception of long-term, fixed rate local currency (LC) housing finance) were not efficient at all. Out of 12 investigated countries 6 had some success to limit FCL. Others did not have any efficient policy mix. Comparing the experiences of Hungary and other countries I found that the ‘we cannot do anything’ is a worse policy approach than the ‘we will try to do something’ one in spite of its deficiencies. The euro membership could not automatically eliminate FCL as the example of Slovenia shows.