Business activity and financial results of the activities of banking institutions

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Vinnytsia National Agrarian University

Department of Finance, Banking and Insurance

Department of Analysis and Audit

Business activity and financial results of the activities of banking institutions

Aleskerova Yu., Dr Econ. Sci., Professor

Fedoryshyna L., C. Histor. Sci., Ass. Prof.

Vinnytsia

Annotation

This article presents the theoretical and practical problems of managing the bank's business activity and financial results.

The study of business activity is based on the calculation of coefficients that more correctly reflect its state from a financial point of view, coefficients of the dynamics of the development, use of the resources and capital, receivables and payables, including labour resources.

Key words: Privatbank, business activity of the bank, financial results of the bank, work efficiency, banking institution.

Анотація

Ділова активність і фінансові результати діяльності банківських установ

Алескерова Ю.В., д.е.н., професор кафедри фінансів, банківської справи та страхування; Федоришина Л.І., к.і.н., доцент кафедри аналізу та аудиту, Вінницький національний аграрний університет (м. Вінниця)

У даній статті представлені теоретичні й практичні проблеми управління діловою активністю та фінансовими результатами банку.

Ключові слова: АТ КБ «Приватбанк», ділова активність банку, фінансові результати банку, ефективність роботи, банківська установа.

Formulation of the problem

The main indicator of increasing the efficiency of the use of the banking institution's resources is the management of their business activity and financial activity. This makes it possible to objectively assess the financial condition of a business entity that carries out banking activities, with the aim of promptly correcting it. In today's conditions, it is important for banking institutions to conduct a timely analysis of the financial results of their activities for their successful functioning. The guarantee of successful development of a banking institution is constant monitoring of financial results and work on their stabilization. Stable financial results are the main element of the success of a banking institution and a guarantee of stable long-term development. Therefore, given the need for our country and, first of all, its banking institutions to quickly overcome declining phenomena, to realistically and successfully fulfil all the provisions of the Association Agreement of Ukraine with the EU, it can be determined that the topic of the chosen study is relevant.

Analysis of recent research and publications. Considerable attention is paid to the study of banking as a criterion for the effective functioning of a banking institution, in the writings of foreign economists, in particular E. Dolan [12], K. Kempbel [12], P. Kempbel [12], Ye. Khelfert [12] and others. School of Economics should highlight the research of Yu. Bondareva, I. Vorobyov, G. Kaletnik [4], L. Kovalenko [4], V. Kovalov [5], M. Korobova [6], H. Savytska [10], O. Skydan [4], H. Tkachuk [4] and others. Despite the considerable number and variety of development of these researchers and modern scientific developments in the field of business activity management of banks, it should be noted that improving the mechanism of business activity management of a banking institution requires further scientific consideration. This led to the need for this study. Formulating the goals of the article. The purpose of the article is to substantiate the scientific and theoretical bases and to develop practical recommendations on business activity and financial results of banking institutions.

Presentation of the basic material of the study

At the present stage, one of the most important indicators of the bank's activity is its business activity. Given the capacity and content of the concept of business activity, it is advisable to characterize the essence of this concept, the study of the category of the activity.

Studies show by the end of the 20th century of financial science did not pay due attention to the consideration of business activity of enterprises and did not attribute it to a special category of the socio-economic relations. Despite the objective existence of this term, the depth of many important aspects of business activity is still insufficient [2, p. 215].

In the concept of «business activity» (Business Activity) the key to its understanding and interpretation is «activity». In the modern economic dictionary, the latter is regarded as a very broad social concept and is defined as an enhanced activity, active state [3, р. 35].

Bank's business activity is a fairly wide concept that combines many aspects of activity and is one of the key factors that influence the efficiency and quality of economic processes, productivity of social production, its social identity.

Considering the activity in terms of the functioning of the bank as a production and economic mechanism, modern scientists and scientists compare this concept with commercial activity and market activity. The definition of various authors show that the market activity of the enterprise characterizes the enterprise in the market and its image for consumers and competitors [5, р. 40].

It should be noted that at the macro level it is necessary to consider business activity as a specific activity of the bank. At the macro level, we propose to associate the concept of business activity with the functioning of the stock market or economic system, considering how an important criterion for evaluating the economic system as a whole or individual macroeconomic component.

The term «business activity» is widely used in economic literature (Table 1).

Table 1

Characteristics of the essence of business activity in economic literary sources

Source: formed by the authors according to the literary sources

According to the research results, it is properties of the bank's business activity (Fig. 1).

Fig. 1. Key properties of the bank's business activity

Source: Formed by the authors based on the literary sources [9, 12, 13]

Firstly, thanks to the ratio analysis, it is possible to assess the financial condition of the enterprise. Secondly, it characterizes the level of the use of the company's potential by determining its real capabilities in a certain industry, the availability of production resources and reserves, productivity of labor resources, 101 organizational structure, etc. Thirdly, business activity significantly affects the bank's position on the market, its competitiveness. This is manifested through the indicators of turnover, the presence of sales markets. The fourth feature of business activity is established permanent control for the implementation of appropriate management measures. There is a systematic process of observation and analysis of dynamic economic processes. With the he lp of the last property of business activity, the bank's strengths and weaknesses are revealed, which must be taken into account while forming various development strategies [8, p. 138].

In Ukraine, a system of interconnected set of indicators and coefficients is used to assess the financial condition of a commercial bank. This system reflects the overall results of the bank's activities. The algorithm for calculating these indicators is determined by the accepted accounting system and financial reporting forms established by the National Bank of Ukraine.

Most methods combine three groups of indicators that make it possible to assess the financial condition of the bank based on the assessment of financial stability; assessments of business activity; assessing the liquidity.

Profit creates guarantees for the further operation of the bank, since only profit and its accumulation in the form of various funds make it possible to limit and overcome the risks associated with the operation of the bank.

The profitability of a commercial bank is a multifaceted economic category, which simultaneously combines the results obtained from the enterprise's activities, as well as its ability to earn a profit as the main source of extended reproduction in the future.

We will analyze the financial and economic indicators according to the data of the Ministry of Finance of Ukraine and the financial statements of JSC CB «Privatbank» for 2019-2021 (Fig. 2).

Fig. 2. Dynamics of the equity capital and net profit of JSC CB «Privatbank», million UAN. Source: calculated by the authors based on the bank's financial statements

During the investigated period, the amount of the equity capital of JSC CB «Privatbank» decreased by UAH 1,431,000, which indicates a slowdown in the strengthening of the financial condition. At the same time, it should be noted that the size of the share capital did not change during this period. The decrease in the amount of the equity capital occurred as a result of the slowdown in the accumulation of reserves and other funds and revaluation reserves. The size of the bank's net profit for 2021 amounted to UAH 35.05 billion, this indicator remains the maximum financial result of the entire banking sector of Ukraine.

The profitability of the enterprise is directly related to the receipt of the profit and shows the efficiency of the activities of enterprises of various forms of management. However, it cannot be equated with the absolute amount of profit received, since profitability is a relative indicator measured in ratios or percentages.

The advantage of profitability indicators compared to profit indicators is that there are more possibilities of comparison. The growth of these indicators is positive for the banking institution, which will provide opportunities for its further successful development. Fig. 3 clearly shows that the profitability of the banking institution has decreased. At the same time, it should be noted that the bank achieved the highest level of profitability in 2019.

Fig. 3. Dynamics of profitability of JSC CB «Privatbank», %. Source: calculated by the authors based on the bank's financial statements

Liquidity standards allow to estimate timely execution by banks of cash payments on obligations and readiness to meet credit needs without losses. Liquidity risk is the probability of losses or additional losses or failure to receive planned revenues as a result of the banking institution's inability to provide financing for the growth of assets and the fulfilment of its obligations in due time.

Let's assess the liquidity and capital adequacy of JSC CB «Privatbank» (Fig. 4).

As of the end of 2021, the capital adequacy ratio o f JSC CB «Privatbank» has increased to 16% and exceeded the limit set by the NBU (at the level of 7%).

Over the past year, the liquidity standards of JSC CB «Privatbank» have changed as follows:

- the standard of short-term liquidity decreased by 2.29 p: from 92.92% to 90.63%;

- the norm of the liquidity coverage ratio for all currencies has decreased by 26.89 percentage points to 251.34%;

- the norm of the liquidity and foreign currency coverage ratio has decreased by 1.76 percentage points to 216.42%.

Fig. 4. Dynamics of liquidity and sufficiency of JSC CB «Privatbank», %. Source: calculated by the authors based on the bank's financial statements

business activity financial stability profitability privatbank

Indicators of business activity make it possible to interpret the state and use of the bank's economic potential, i.e. available and hidden opportunities, and the weight of business risks assumed.

Let's consider the coefficients of business activity of JSC CB «Privatbank» (Table 2).

Table 2

Thus, it can be concluded that the calculated values for JSC CB «Privatbank» for 2019-2021 characterize the bank's business ac tivity as optimal from the point of view of the ability to attract funds from other sources and effectively place them in active operations.

The effective indicator of the banks activity is the amount of the profit. The level of profitability of the statutory and general capital, assets, as well as bank expenses characterize their profitability. Let's consider the dynamics of the indicators of financial results of JSC CB «Privatbank» (Tablе 3).

Table 3

Dynamics of indicators of financial results of JSC CB «Privatbank»

Source: calculated by the authors based on the bank's financial statements

* The data are for 9 months

It is worth noting that during the last two years JSC CB «Privatbank» has been making the profit. The bank's net profit in 2021 was 35,050,000 UAH, which is 7.4% more than in 2019, when the profit was 32,609 million UAH.

Analysis of the dynamics of the financial performance indicators shows that the main source of the profit for the bank is interest income, which has decreased by 7,537.0 million UAH in 2019-2021, that is, investments in assets are not effective. A significant increase can be seen in all income indicators, especially in the amount of net profit. Net interest income grew as a result of maintaining a high interest spread during the year, interest rates on liabilities and assets fell in parallel. During the studied period, it has increased by 6.6%. There was also a slight increase in net commission income.

Interest expenses of JSC CB «Privatbank» has decreased from 14,095 million UAH in 2019 to 5,302 million UAH in 2021. During this period, the amount of administrative expenses increased significantly by 2 times.

But in the future JSC CB «Privatbank» still demonstrated an increase in the net profit of 7.4%. In 2020, it received 24.3 billion UAH profit, which is 8.29 billion UAH less than in 2019. This is due to the fact that the bank formed reserves of 10.2 billion UAH to cover possible risks due to the pandemic and legal risks, which affected the net profit indicators.

The profitability of a commercial bank is a multifaceted economic category, which simultaneously combines the results obtained from the implementation of the institution's activities, as well as its ability to earn the profit as the main source of expanded reproduction in the future.

Conclusions

After researching the scientific works of various scientists for the classification of business activity, we summarized them by combining similar in its essence. The classification that you have studied takes into account the peculiarities of the functioning of the bank's business activity and allows more effectively manage its formation and use.

Earning a profit plays an important role in the activity of the banking institution. Obtaining profit by the bank allows to obtain the maximum information for determining the financial stability of the bank. In the future, this assessment will provide an opportunity to draw conclusions about the development prospects and financial situation of the bank both for its customers, creditors, depositors, and for the NBU, which constantly supervises the activities of banking organizations.

However, in the conditions of fierce competition, JSC CB «Privatbank» needs to improve the systems and forms of asset and liability management every day. This approach guarantees the bank's economic stability in the future.

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