Evaluation the liquidity of commercial bank (on the example of the Commercial bank Kyrgyzstan, OJSC)

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+THE MINISTRY OF EDUCATION AND SCIENCE OF

THE KYRGYZ REPUBLIC

INTERNATIONAL ATATURK ALATOO UNIVERSITY

ECONOMICS AND ADMINISTRATIVE SCIENCES FACULTY

FINANCE AND CREDIT DEPARTMENT

Evaluation the liquidity of commercial bank (on the example of the Commercial bank Kyrgyzstan, OJSC)

Senior Thesis

By Israilova Zh.

Thesis Advisor: Atabaev N.

Bishkek - 2017



THE MINISTRY OF EDUCATION AND SCIENCE OF

THE KYRGYZ REPUBLIC

INTERNATIONAL ATATURK ALATOO UNIVERSITY

ECONOMICS AND ADMINISTRATIVE SCIENCES FACULTY

FINANCE AND CREDIT DEPARTMENT

Evaluation the liquidity of commercial bank (on the example of the Commercial bank Kyrgyzstan, OJSC)

Senior Thesis

By Zhanylkan Israilova

ID 12020303700

Thesis Advisor: Dr. Nurlan Atabaev, Ph.D. of Economic Sciences	Date of submission:
Head of Department: Kuban Zhumanazarov	Date of submission:

Bishkek - 2017



Table of contents

Introduction

Chapter I. Theoretical foundations of liquidity of commercial bank

1.1 Understanding of term liquidity of bank and factors that define them

1.2 Concept of liquidity risk and management approaches

1.3 Indicators of liquidity in the world and domestic banking practice

Chapter II. Analysis of liquidity Commercial bank KYRGYZSTAN, OJSC

2.1 Short economy characteristics of Commercial bank KYRGYZSTAN, OJSC

2.2 Analysis the Balance sheet of Commercial bank KYRGYZSTAN, OJSC

2.3 Liquidity assessment and management politics of Commercial bank KYRGYZSTAN, OJSC

Chapter III. Bank portfolio management

3.1 Conclusion during the analysis

3.2 Recommendation to the bank portfolio management

Conclusion

Bibliography

Annexes



Introduction

As stated in the Banking legislation of the Kyrgyz Republic in article 3 one of the main tasks of the National Bank of Kyrgyzstan is to maintain the purchasing power of the national currency, security and reliability of banking and payment system of the state, to develop and support economic growth in the Kyrgyz Republic. In historical practice of many countries we see a trend that the banking system can, to develop the country's economy and slow it down. Therefore, competent, efficient ability to manage banking institutions is a priority of the long-term strategy to the improvement the economy of the state.

A modern banking system is one of the most important sectors of the national economy of all governments. Banks have always occupied and will occupy a Central place in the management of the economy. The variety and complexity of changes occurring in the banking industry necessitate deep reflection and need to develop effective approaches to the mechanism of realization of functions of commercial banks in the system of market relations.

Indicators for sustainable financial functioning of the Kyrgyz commercial banks play nowadays a significant role. The Bank's financial sustainability is not just an attribute of modern politics, but also the development strategy of credit institutions. One of the main objectives of Bank management is to ensure sufficient liquidity.

As for the economy and for the banking system as a whole, the issue of liquidity is a matter of trust and satisfy the needs of different sectors of the economy in providing calculations, credit resources and Deposit of funds.

Correct assessment of the level of liquidity and effective management refers to the most important issues of activities of credit organizations and is an essential component of banking strategy.

In terms of economic stability compliance with the liquidity and solvency of the Bank, the means to maintain them in order to ensure profitability, reliability and sustainability are important. You can also mention a few of the reasons why liquidity is a key activity of banks.

First, liquidity is a crucial criterion in the eyes of the customers of the Bank and future investors, which suggests that the banking institution is actually a stable, reliable and financially stable. Second, modern commercial banks, as a rule, are universal and have not only traditional banking services but also they are making active operators of the currency market, securities market providing insurance services emit e-money and perform many other operations. That say that a Bank liquidity crisis can lead to the state many problems in different sectors of the economy. The third reason comes from the history of the global financial crisis of 2008-2009. Which was the cause of the loss of confidence in financial intermediaries by the economic counterparties. The result is a substantial reduction in the volume of transactions in the interbank credit market and there was a significant outflow of the banks ' corporate and retail customers. These factors, as well as the imbalance of assets and liabilities in terms of the number of banks has led to serious financial difficulties. For the period from October 2008 to March 2009 due to the crisis and liquidity problems 50 world-scale banks were deprived of licenses. This practice has forced banks with a cautious approach to the problem of liquidity risk and to develop new strategies for managing liquidity. Fourth, the maintenance of liquidity of individual banking institutions is beyond the scope of individuality, because the liquidity problem in one Bank will entail a number of problems and can have system-wide consequences. This can be explained by the fact that the development of technologies and means of telecommunication, and also the rapid growth of changes in financial markets pose a threat of rapid spread of problems in one Bank for the whole banking sector. Thus, liquidity is a critical factor for the viability of any financial institution.

A study of Bank liquidity, the theoretical foundations of management, and an effective mechanism to maintain and improve the liquidity of banks is one of the most urgent challenges facing the domestic banking system at the current stage and for the future. And this topic is critical because the banking system is one of the integral structures of a market economy and as the financial sector is growing rapidly and there are abundance of financial instruments and, moreover, that the banking community needs to integrate into the world. Based on the above, the relevance of this problem caught my attention and led to the selection of the topic of my research.

The aim of this work is the theoretical study of the liquidity of commercial banks, the determination of the actual liquidity of the branch, a consideration of liquidity and solvency on the example of Commercial Bank Kyrgyzstan, OJSC the studying of liquidity management and factors influencing its change.

Within this goal it is necessary to solve the following problem:

1. To define the concept of liquidity and solvency of a commercial Bank.

2. To reveal the contents of the methods of calculation of regulatory liquidity indicators in the Kyrgyz Republic, to compare with the assessment indicators of liquidity used in the world.

3. To perform the Bank's liquidity, to determine trends, identify causes of changes in liquidity.

When writing the thesis the object of study chosen activities Open joint stock company commercial Bank "Kyrgyzstan".

The subject of research - the regulatory liquidity ratios of the Bank for the period from 2011 to 2016

The structure of the work

The first part of my work is to determine the values of liquidity in the banking system and to explore methods of liquidity management, where the focus is on the management of liabilities. The main task of the first Chapter - the disclosure of the content of the methods of calculation of regulatory liquidity ratios used in Bank liquidity management in Kyrgyzstan and to compare with the assessment indicators of liquidity that are applied in the world practice.

Analysis of liquidity ratios, which established the Central Bank of each country to organize the control over the liquidity situation of credit institutions and the banking system as a whole occupies a substantial Chapter of this work.

The final part is devoted to the problems of liquidity management in particular in Kyrgyzstan and some suggestions for their solution.

When writing the thesis used the legislative and normative acts of the National Bank of the Kyrgyz Republic, as well as theoretical and methodological basis of the research consists of the works of scientists, economists, devoted to issues of Bank liquidity, including: foreign - J. M. Keynes, John.F. Since, E. Reed, R. Kotter, V. I. Kolesnikov, O. I. Lavrushina, A. N. Trifonov, V. A. Ponomarev, Alexey Simanovsky, S. Rumas, Tn. Loban, K. and Narrow. On the periodicals on the subject of work; on the financial statements, presented on the official website of Bank OJSC Commercial Bank "Kyrgyzstan"

Research methods - comparative and systematic analysis of phenomena, the analysis of causal relationships and interdependencies, systemic approach to the study of economic processes, statistical method for research of dynamics of indicators, calculation method for the determination of indicators.



Chapter I. The theoretical basis of the liquidity of a commercial Bank

1.1 Concept of liquidity of a commercial Bank and its classification

According to the theories of financial intermediation, put forward two reasons for the existence of financial institutions that provide liquidity and financial services. Regarding the provision of liquidity, banks accept funds from depositors and grant loans to the real sector, while at the same time, responding to customer requirements in the event of the withdrawal of deposits at any time. However, the role of banks is to transform short term deposits into long term loans makes them vulnerable to liquidity risk.

So, one of the key concepts in banking is liquidity, and liquidity risk management takes pride of place, as it is maintaining the proper level of liquidity the Bank allows him to stay solvent, thus creating the indispensable conditions for achieving the main objectives of Bank activities and sustained development of the national economy. Liquidity - one of the key concepts in banking.

Liquidity is the basis of reliability and stability of commercial banks, as it creates the conditions for its solvency.

Understanding liquidity in modern economic literature and practice is not straightforward.

The normative act defines Bank liquidity in the following way: "Under the Bank's liquidity refers to the ability of the Bank in a timely manner and without loss to meet its obligations to depositors, creditors and customers."

In particular, about the importance of observing consistency between the terms active and passive operations, liquidity position economists wrote in the late NINETEENTH century

A more precise definition, which will accept banking specifics, gives the famous scientist John. Since: "the necessary Liquidity to banks mainly in order to be ready for the withdrawal of deposits and to satisfy the demand for loans. Unexpected changes create streams for banks liquidity problems".

The term liquidity is derived from the Latin Liquids, which means flowing liquid, i.e., the liquidity gives a particular object characteristic ease of movement, displacement. In the banking literature often uses the term reliability. Under this in the General case refers to a comprehensive (integral) characteristics of current economic and financial condition of the Bank and its promising foreseeable future obtained, as a rule, on the basis of distance (proximity) analysis of official and published accounts.

The concept of reliability of the Bank, reflects both would look at it from the outside, especially from the clientele. View of the banks themselves on their own reliability and the means for achieving this is best expressed by the concept of sustainability. The Bank's liquidity is determined by the balance of its assets and liabilities, and to a certain extent, the compliance of the terms of placed assets and attracted liabilities. Under the creditworthiness understand the reliability, i.e. the ability in any situation in the market and not in compliance with the upcoming deadlines of payments, perform its obligations. In order to avoid liquidity problems, banks are trying to balance the demand for liquidity in liabilities with the supply of liquidity in the Bank's assets. The demand for liquidity usually comes from two sources: when Bank customers withdraw the funds they have on Deposit (using their existing cash flows) use existing lines of credit or attract new ones.

To supply customers with the necessary liquidity, banks generate liquidity by raising funds on the secondary markets or using its stored liquidity in the assets. John. Since continued that "the ability of banks to supply liquidity depends on the availability of highly liquid and easily movable financial assets. The liquidity requirement means that financial assets should be available to owners in the shortest possible time (within one day or less) at par. The requirement of portability means that the right to own financial assets should be transferred at par to another economic agent, and in a form acceptable to him."

Liquidity of a commercial Bank is key to its sustainability and efficiency, as the Bank has sufficient liquidity, in a state with minimum losses to perform the following functions:

make payments on behalf of customers (commitments to funds in settlement, current and correspondent accounts reserved for payments);

to repay lenders (depositors) funds, with the onset of maturity and early (funds in deposits);

to meet customer demand for funds in the framework of commitments, e.g., loan agreement, credit lines;

to repay the Bank's securities;

to meet the obligations which may occur in the future, for example, under the balance sheet liabilities (guarantees issued, asset management, cash and derivative transactions), etc. liquidity balance commercial bank

Thus, for commercial Bank liquidity is a necessary condition for the stability of its financial condition along with the risks of active and passive operations, the balance of portfolios (lending, securities and investment) of the Bank, profitability of operations. Thus, for commercial Bank liquidity is a necessary condition for the stability of its financial condition along with the risks of active and passive operations, the balance of portfolios (lending, securities and investment) of the Bank, profitability of operations.

It must be emphasized that in order to maintain its stability, the Bank must have a liquid reserve for its contingent liabilities, which may be caused by a change in the state of the money market, the financial situation of the client or of the Bank partner.

The Bank's liquidity situation depends on a number of internal and external factors.

The internal factors include: a robust capital base of the Bank, the Bank's asset quality, quality of deposits, a moderate dependence on external sources, the balance of assets and liabilities, the positive image of the Bank, the proper level of management.

The main external factors affecting the liquidity of the Bank are: General economic and political situation in the country, the degree of development of the securities market and the interbank market, the organization of the refinancing, the effectiveness of the oversight functions of the National Bank of Kyrgyzstan

Managing Bank liquidity risk, therefore, is defined as the process of generating the funds needed to meet contractual obligations at reasonable price at any time. Effective liquidity management has several objectives:

1. Demonstrate to market the Bank's reliability and its ability to pay the required amount to the creditors, providing the trust factor. Bank liquidity is interconnected with the reputation of the Bank and, accordingly, if the Bank has no liquidity problems is certainly, is attractive to clients seeking to avoid exposure to bad faith on the part of credit institutions in the implementation of customer payments and the overall instability of the Bank.

2. Allows the Bank to perform its obligations in lending. This feature is an integral part of the relationship Bank - client.

3. Allows banks to avoid unprofitable sale of assets. Banks have the option not to do the urgent sale of assets at fire-sale prices in order to generate funds, preventing unprofitable or unprofitable operations.

4. Reduces the size of the premium for the default risk that the Bank pays, attracting funds.

5. Allow the banks not to abuse the borrowing from the national Bank, which may lead to tighter supervision or to the growth of mistrust to the Bank in the market, or and that and the other.

Considering the classification of assets by degree of liquidity, there are four groups assets .

The first group includes highly liquid assets that can immediately be used for the payment of seized Deposit, or satisfaction of loan applications, since they are in a cash advance or easy t can quickly be transferred to her. Liquid or as they are called, first-class assets are: cash, funds in correspondent accounts government securities in the portfolio.

It should be noted that banks whose Deposit base is not stable or who anticipate higher demand for loans, need a higher proportion of highly liquid assets. Thus, prevention of the first group of assets at a certain level is essential in order to ensure liquidity of the Bank.

The second group includes assets with an average degree of liquidity that can be converted into cash with little delay or a significant risk of loss and call their liquid assets in the Bank. There are: short-term loans to legal entities and individuals, interbank loans and short-term corporate securities.

The third group includes the low liquid assets, such as long-term investments and Bank investments, including long-term loans, leasing transactions, investment securities. Such assets, the probability of transformation into money is very small.

Finally, the fourth group of assets is hopelessly illiquid or liquid assets in the form of overdue loans, some kinds of securities, buildings and structures that have a zero probability of turning into cash. The lower the level of liquidity of the asset, the higher their risk, which can be compensated by higher income for the Bank, as profitability is the cost of risk.

The main features that characterize the liquidity should include the object, a source of liquidity, time and form of payment. Since Bank liquidity is affected by many different features, each of which has its specific meaning and its significance for the administration, analysis and control over the activities of commercial banks, only provided a comprehensive, systematic use of the entire set of features can be said with some confidence to characterize the Bank's liquidity as a whole.

1.2 Concept of liquidity risk and management approaches

In theory and in practice, the Bank's liquidity is considered in conjunction with its profitability. In the process of asset management, banks are always faced with the dilemma of "profitability - liquidity". To perform their daily duties, the Bank requires a certain amount of unprofitable assets in the form of money or equivalents. The nature of these assets reduces the profitability of the Bank (not profitable or low-income). Therefore, in the interests of the Bank to hold the minimum number of such assets remaining, however, able to meet the liquidity requirements. The concept of liquidity risk in the literature are given different definitions. On the one hand, liquidity risk arises due to inability of the Bank to timely perform all of its obligations without incurring unacceptable losses on the other hand, the liquidity risk is associated with the impossibility of fast conversion of financial assets to paying the funds without a loss. So, K. R. Macconnal, S. L. BRU the following reflects the situation: "... the banker has two incoming in conflict with each other purpose. One goal - profit. Commercial banks, like other businesses, seek profits... on the other hand, commercial banks should strive for security. For banks, the liquidity security is ensured, in particular such liquid assets as cash and excess reserves. Banks should ensure that depositors did not translate its current obligations in cash. Similarly, there is a possibility that the cheques provided to the Bank for payment, will more than provide for payment by him, thereby the outflow of reserves. Therefore, the bankers are striving for a balance between caution and profitability. The compromise achieved determines the relative size of income-generating assets, opposing highly liquid assets"

As in the book of Professor O. I. Lavrushina "Money. Credit. Banks", it is considered that the policy should be that, in order to achieve balance between risk and income of the Bank. Equilibrium in the short term, or short-term equilibrium represents a balance between liquidity and profitability. The higher the liquidity the lower the profitability and Vice versa: the lower the liquidity, the higher the expected profit and the risk necessarily. The balance in the long term, or the long-term equilibrium, assumes that the higher the liquidity, the stronger the financial condition of the Bank, the higher the liquidity, the stronger the financial condition of the Bank, its capital base. Conversely, the lower the liquidity, the less stable the Bank is less than its capital solvency. The solution to the problem of attracting cheap and the placement of expensive resources is the policy of the Bank, which can bring higher income at a reasonable, from the point of view of the management, the level of risk. Risk management liquidity is a pricing (risk due to the price at which can be sold assets, and interest rate, which can be brought liabilities) and quantitative components (risk due to location in the Bank assets that can be sold, and opportunity in the market to purchase tools at any price).

Liquidity risk in most cases is manifested through two other risk for modern banks, i.e. interest rate risk and the risk on the exchange rate.

Liquidity management can be carried out by comparing the degree of liquidity of assets and liabilities of the constancy, or otherwise, by the management of the funds. This method is to compare the total liquidity needs and all available to the Bank sources its cover. For this purpose, indicators of an estimation of liquidity of balance. The essence of this method is that all Bank funds received from various sources, are considered as one pool of funds available to the Bank. Then the challenge was to create primary and secondary reserves to ensure liquidity. Primary reserves consist of absolutely liquid assets cash and balances on correspondent accounts. In the composition of secondary reserves include highly liquid assets that can be quickly implemented and that have a large turnover. They can be formed from acceptances, promissory notes and, to some extent, bonds of first-class issuers. For example, additional reserves are highly liquid foreign currency can be considered as secondary reserves. The reserves of cash needed for daily operations of the Bank, but a certain surplus provides the first line of defense in the event of liquidity problems. Primary reserves are the non-profit assets secondary reserves already provide some income to the Bank.

The method of conversion funds is that the funds mobilized from different sources are used differently. The method of conversion of funds, you must:

1) to distribute all funds by funding source, depending on the turnover on the accounts and reserve requirements;

2) distribute the funds from each source for financing of the respective assets.

Thus, the dilemma of “risk income” shall be determined separately for each funding source, as if it were a separate Bank; hence another name for this method is minibank.

To apply these provisions in practice requires their detailed specification. You can, however, be noted that commercial banks, applying in practice methods of liquidity management on the basis of the analysis and forecasting of cash flows, are the least vulnerable to negative impacts of market fluctuations and risk of the imbalance of liquidity. Thus, banks that most quickly and effectively master the tried and tested Arsenal of tools for managing liquidity, strengthen its resilience and increase competitiveness in the tough environment of the modern financial world.

In practice, the liquidity risk is divided into the following components:

1. The risk of unbalanced liquidity-the ability not to generate income or decrease the value of the assets of the Bank arising in connection with the Bank's ability to timely and cost-effective to meet the cash needs;

2. The risk of loss of solvency - the ability of non-performance by the Bank of its current obligations arising as a result of imbalance of demand liabilities and highly liquid assets.

3. The risk of excess liquidity - the ability of lower returns on assets due to the surplus of highly liquid assets that are concentrated in low-income and non-income Bank instruments.

Banks to maintain liquidity at the required level carry out such a policy in the management of assets and passive operations generated by taking into account the specific conditions of the money market, the specific customer base, the development of banking services. For the proper regulation of liquidity risk a Bank should be an optimal balance structure, according to the demand liabilities, assets can lose their value in a timely manner to be converted into cash.

Commercial banks in the implementation of their activities as any business entities operating in a market economy, aimed at getting maximum profit. However, keep in mind that almost any of the Bank's operation is accompanied by the risk of incurring losses.

Control of risk is essential in banking. Any managerial decision in the banking activity is risky and difficult to predict since the financial sector is very sensitive not only to various socio-economic factors, but also political. The slightest instability in society is very detrimental to the status and dynamics of all segments of the financial market. And since macroeconomic indicators are difficult to predict, to avoid all risk in management decisions is simply impossible.

Therefore, the main objective of banking risk management is to properly assess the possibility of risk in any particular operation, and to reduce it to a minimum.

Efficient operation of a commercial Bank depends on the right risk-return ratio. Operations planning of the Bank, determine the benefits and costs of each kind of active operations and to acquire the resources needed to achieve the goals and objectives of the Bank, compliance of liquidity and solvency.

Historically, Bank liquidity management has evolved through following stages:

1. The theory of commercial loans (1920s and earlier)

2. Theory of movement ( since the end of world war II in the 1940s.)

3. The expected income theory (1950s)

4. Management liabilities ( end of 1960s, beginning 1970s)

5. Management of assets and liabilities and sekurytyzacja (mid 1970s, mid 1990s)

6. Risk management ( mid-1990s to the present day)

These theories have evolved with the development of the financial risks of individual sectors, national systems of monetary regulation of the banking system and the global financial crises a very strong influence on the structure of Bank liquidity management. Now modern banks are significantly different from those of the existing banks a few decades ago.

Among the main instruments for attracting funds include the following.

1. Inter-Bank loans. A loan from the Central Bank or correspondent Bank is one of the methods of raising funds for the adjustment of the liquidity position.

2. Reserve funds. Excess reserves are traded in the interbank market. Unsecured "immediately available" funds, constitute excess balances in reserve accounts at the Central Bank. Bank in need of liquidity, buys back the funds, and his competitor sells such funds.

3. Agreement to repurchase. REPO secured the contract for sale at the following redemption of securities at a set price on a set date, usually overnight. Bank in need of liquidity makes the repo and the provider of funds is carried out by reverse repo.

4. A certificate of Deposit. Is a financial instrument, which every day become more and more popular in the financial market. It seamlessly combines the benefits of Deposit and securities has a high degree of counterfeit protection, and high liquidity. A certificate of Deposit is essentially a security certifying the amount of the Deposit made to the credit institution. In the certificate defines the rights of holder to receive upon the expiry of the term Deposit amount and interest thereon to the credit of the Issuer or any its branch.

5. Loans on the Eurodollar market. It is a tool of management liabilities, which is a dollar Deposit in a Bank or Bank branch located outside the United States. The Eurodollars are formed when an American or foreign investor US Bank transfers funds in a foreign Bank or a branch of a us Bank. As a result, the own contribution in the United States goes to a foreign financial institution, and the latter, an obligation subject to repayment in US dollars. In this case, the total banking deposits in the United States remain unchanged, but abroad there is a new Deposit obligation in US dollars - Eurodollars.

6. Commercial paper. Short-term unsecured debt instrument issued by a Bank holding company or nonbank subsidiary, but not by the Bank. Maturities ranging from 2 to 270 days. The most common period of up to 30 days.

In a broad sense, the management of passive operations is an activity that is associated with the involvement of appropriate combinations of sources of funds for the Bank. In a more narrow sense, under the management of passive operations began to realize the actions directed on satisfaction of needs and liquidity through active research of the borrowed funds as necessary.

Banks are now fully appreciate the positive potential, which is the coordinated financial management of the balance sheet as a whole, that is managing assets -liabilities (ALM) and risk management. This allows you to respond appropriately to various scenarios of changes in interest rates, liquidity and repayment. In a number of methods (ALM) are : compliance date maturities or durations falls revalued assets and liabilities, hedging instruments off-balance-sheet risk balance - sheet method involving the use of derivative instruments and securitization, that is removing risk from the balance sheet.

Along with the concept of "liquidity", there is the concept "solvency", which is broader.

The Bank's solvency is its ability in due time and in necessary volume to meet its obligations not only to creditors and depositors, but also to the budget, insurance bodies etc. is considered a Solvent Bank, whose assets exceed the liabilities, so the solvency of the Bank greatly influenced by the private capital. Regulation of the solvency of banks by the National Bank through the establishment of standards of adequacy of regulatory capital.

Thus, the art of Bank management is to provide the highest rate of return on the capital invested in assets, not leaving thus for frameworks of the accepted norms of liquidity.

Having considered the basic concepts related to liquidity, identifying the importance of liquidity for both the individual Bank and the entire banking system and the economy in General, let us consider the indicators which evaluate the Bank's liquidity.

1.3 Indicators of liquidity in the world and domestic banking practice

Analysis of commercial Bank liquidity allows us to identify potential and actual trends, indicating a deterioration of the liquidity of Bank balance, to analyze the factors that caused the development of negative trends, and take appropriate measures to adjust the situation.

Conduct financial analysis in Bank has huge value for on the basis of its results the management assesses existing and develops forward-looking policies of the Bank, defines efficiency of separate kinds of operations and plans development of new species.

Liquidity management of a commercial Bank in the country, is on two levels.

1. At the level of the National Bank (Central office),

2. At the level of a commercial Bank (the decentralised management Board).

Measures to ensure liquidity, carried out by centralized and decentralized, differ in focus and content the methods and tools of case management. The objective of Central liquidity management is to maintain liquidity of each credit institution and the stability of the banking system as a whole. It should be noted that the national Bank regulating banking activities contributes to the economic development of the country as a whole. Accordingly, the objectives of such management are: definition of regulatory standards and rules of operation of credit institutions, ensuring their liquidity; selection of instruments of liquidity regulation; the organisation of control over liquidity of individual credit institutions and the banking system as a whole. Their achievement regarding improvement requirements and Supervisory procedures and is implemented through raising the level of all components of the supervision process.

Liquidity the Bank's balance sheet is measured through calculation of specific indicators that reflect the value of assets and liabilities the structure of assets. In international banking practice is most often used for this purpose liquidity ratios. Liquidity indicators in different countries have different names, different methods of calculation, which is associated with the established practices and traditions depend on the specialization and size of banks, the policy in the field of credit and certain other circumstances. In most countries, the liquidity indicators of the legislatively regulated. Banking authorities usually carry out forced regulation of liquidity by bringing to the banks of a binding liquidity ratios. In this case, the Supervisory body defines a quantitative index of liquidity, which is calculated based on the banking data assets and liabilities according to uniform for all banks algorithm. Depending on the economic content of the indicator, the banking authority sets a standard of permissible maximum or minimum value, and determines the order and terms of provision of Bank statements.

In the United States for regulation and supervision of banking activities where not a few of the important role played by liquidity, this is one of the most famous in the world approaches to assessing the financial stability of banks - CAMELS. In 1978, the Federal reserve, the Comptroller of the currency and the Federal Corporation on insurance of contributions agreed on the harmonization of the standardization of its rating systems analysis of the financial condition of a commercial Bank.

Basic principles and methods of the CAMELS system used in the Supervisory activities of the Supervisory agencies of many countries to build their own systems of assessing the reliability of banks.

The acronym CAMELS represents the combination of the initial letters of the analyzed components, the names of which are virtually identical to definitions used in the Russian banking supervision.

Capital adequacy. The system determines what is the capital of the Bank may be used for the protection of its creditors and sufficient if its value.

Asset quality. The system allows you to obtain information on areas of heightened credit risk, to analyze the composition of the loan portfolio focusing on the financial impact of troubled loans.

Management. The technique allows to determine the quality of Bank management based on the evaluation results, compliance with laws and regulations adopted by the control system.

Earning. The system evaluates the effectiveness of the Bank's operations, determines the sources of income and reveals its sufficiency for the future development of the Bank

Liquidity. The system determines the adequacy of the Bank's liquidity, in terms of timely performance of its obligations

Sensitivity to risk. Allows you to determine how to change the financial condition of the Bank at the interest rate.

Each indicator is scored on a scale from 1 to 5, where 1 is financially sustainable Bank with a significant deviation of particular indicators for each element which may not lead to negative consequences of its activities. 5 - Bank the scope and nature of activities which has a critical level and needs immediate intervention by the Supervisory authorities and Bank management.

The evaluation of each component exhibited a comprehensive assessment

1. strong

2. satisfactory

3. mediocre

4. critical

5. unsatisfactory

Back in 1977, CFO of Citicorp, said the group of analysts that the priorities adopted by the regulators of the CAMELS rating we need to revise the rating is called "LEMAC" liquidity has to come first, without it, the Bank did not open with it, the Bank will solve any problems...

Thus, based on the results of the financial analysis of the Bank's management develops measures to strengthen the financial condition of the Bank.

Assessment of liquidity allows to identify potential and real trends, indicating a deterioration of the liquidity of Bank balance and to take appropriate measures to adjust the situation.

In modern practice, two methods are used for assessing liquidity: by calculating the coefficients based on the matching of cash flows.

The basis of the method of coefficients is mandatory liquidity ratio set by the National Bank of the Kyrgyz Republic. Currently, in accordance with the Provision on economic standards and requirements binding to commercial banks and financial-credit institutions licensed by the National Bank of the Kyrgyz Republic commercial banks expect liquidity ratio (K3), which regulates (restricts) the risk of Bank losses liquidity and is defined as the ratio between assets and liabilities the Bank's balance sheet based on their terms, amounts, and types.

In accordance with the specified Provision of the national Bank liquidity ratio must be maintained at a level not below 30%. Liquidity ratio is determined by the following formula:

K3 = LA/ABOUT

where LA - liquid assets, which include:

cash at Bank in national and foreign currency;

funds on correspondent accounts in banks;

interbank deposits and loans with a maturity of 7 days;

government Treasury bills and other marketable securities issued by the Government of the Kyrgyz Republic and the NBKR, as well as securities issued by Governments and Central banks of the States of the OECD (hereinafter referred to as "marketable securities"). These securities when calculating the liquidity ratio are taken into account, net premium (discount) unrealized profits (losses);

marketable securities purchased under repurchase agreement.

Of the liabilities of the Bank which for the calculation of liquidity ratio are:

demand deposits of legal entities and individuals in national and foreign currency and cash calculations;

any other liabilities, including promissory notes and other securities issued by the Bank and commitments, calculations which occur within 30 days after the reporting date.

Classified interbank placements in the calculation of the liquidity ratio are not included in liquid assets.

Any liquid assets that serve as collateral for the assets provided to customers are excluded from the liquid assets.

Deposits taken by the Bank and constitutes the security for the assets provided to customers are not included in the liabilities of the Bank, if the Bank has the necessary procedures and control system ensure that the Deposit is not withdrawn before the deadline for repayment of the loan.

To mitigate liquidity risk, Bank management should carry out the daily management of assets and liabilities. The Bank must comply with the liquidity ratio during the reporting period (one month) based on average weekly data. During the reporting period, the Bank must calculate the average weekly liquid assets and short-term Bank obligations (when calculating the average weekly values in the calculation includes only working days) at the reporting date. Averages are calculated according to the method of calculating the arithmetic mean of the data.

According to the above-mentioned Provisions of the NBKR, banks have to develop a policy of liquidity risk management, which should include, as a minimum, the following:

daily measurement and monitoring of inflows and outflows of funds and a weekly monitoring of gaps in maturities of assets and liabilities of the Bank to monitor daily liquidity needs and ensure compliance with the obligations;

forecasting liquidity needs;

the structure and assessment of stability of the Deposit base and other borrowed funds;

the cost of resources;

the ability to borrow in the money market;

the quality of the assets;

performance for the balance of the obligations;

planning to cases of a liquidity crisis;

the management of liquidity in foreign currencies;

internal controls for liquidity risk management;

required management reporting.

In addition to standard liquidity of the NBKR in the Methodical recommendations for conducting the analysis activities of banks on the basis of factors offers to commercial banks when conducting a liquidity analysis, use the following coefficients.

The ratio of liquid assets to total assets - this ratio shows the share of liquid assets in total assets;

The current ratio - defined as the ratio of current assets to current liabilities. Current assets refer to all liquid assets and loans for a period of 30 days or less, excluding any arrears, classified, prolonged, or for which a suspended imposition of interest. Current liabilities are called all obligations that Mature in 30 days before.

The ratio of loans to deposits - this ratio shows the ratio of the amounts of loans granted to deposits received.

According to international practice, the main indicator of liquidity is the ratio of Bank liquid assets to total assets net of mandatory reserves. This ratio allows us to estimate the total liquidity ratio (number) characterizing the share of liquid assets in total real assets, i.e. the quality of the placements.

Total liquidity ratio (number) is calculated according to the following formula:

Number = liquid assets x 100%

The amount of assets required reserves

The higher the figure, the higher the liquidity and lower the yield. The minimum value of the ratio is set at 20%.

A method for the assessment of liquidity using ratios has some shortcomings. It is not suited to identify and assess excess liquidity, the lack of control which leads to a loss of income for the Bank. In addition, the method gives a fairly approximate estimate of liquidity because the calculation method does not always accurately indicate the degree of balance between the assets and liabilities of the Bank as it does not fully take into account the real quality of Bank's assets and liabilities and their movements.

Another method of assessment of liquidity is based on predicting cash flows of the Bank. The essence of this method is to determine the liquidity position of the commercial Bank at the respective dates of the period under review: total and by currency.

The method involves determining the excess or deficiency of liquidity, accumulated and broken down by period on the basis of the ratio of claims and liabilities of the Bank subject to their movement. If during the period (by a specific date) to the clients requirements (assets) will exceed the liabilities of the Bank will have excess liquidity, if the commitments, meaning the cash outflow exceeds the requirements (income) the liquidity shortage.

To determine the liquidity position is made a restructured balance sheet in which assets and liabilities classified according to maturity and on demand. Based on this balance you can determine how the Bank's liabilities is covered by free assets.

The source data has the following requirements:

-of the end dates of contracts need to use the actual timing of claims and fulfillment of obligations to clients;

Bank's assets it is necessary to adjust the risk of their possible loss; it is necessary to consider authorized to issue the credit Committee of the Bank loans, as well as the expected inflow of deposits; the value of the assets and liabilities should be increased by the amount of accumulated interest (discount, coupon) income (expenses) to be received (paid) in the corresponding period.

The banks themselves determine the value of limits and limiting values of the coefficients of excess (deficit) of liquidity due to the existing practice payments.

The presence of excess or shortage of liquidity over several periods in a row, even when the limits indicates the possibility of losses or due to the additional funding costs of the excess liquidity, or by unfavorable selling liquid assets or incur additional borrowings.

The disadvantages of this method include no data on the inflows and outflows in prior periods and the inclusion of only assets liquid assets the first category of quality.

The assessment of solvency of the Bank based on the characteristics of the condition of payments and the dynamics of their conduct by the Bank. For these purposes, considers the turnover and balances on the appropriate accounts in the balance sheet of the credit institution.

Performance status of payments of the Bank are outstanding as they are owed to clients. The emergence of current payment delays the deterioration of the dynamics and balance of payments of the Bank, which may indicate growth potential problems with making the payments, no problems at the Bank to make payments, reflecting the positive and stable dynamics of payment flows of the Bank.

When considering the entity liquidity, we concluded that the dynamism and variability in connection with a constant inflow and outflow of funds. Thus, liquidity of Bank's balance sheet, i.e. there are sufficient assets, which could be implemented to meet obligations, do not always give the real picture of the liquidity position of the Bank. The Bank's liquidity is in fact a broader concept than balance sheet liquidity, as this measure takes into account the adequacy of the amount of liquid assets and assets that can quickly be mobilized from other sources for timely repayment of its current liabilities.

From this it follows that the Bank in practice must implement a number of measures that would help him to balance the assets and liabilities for amounts and terms, and continue to maintain it's balance and policies on liquidity management given the cash flows causing changes in their structure. Include the following main directions of this activity:

first, the Bank should monitor the dynamics of their obligations, to analyze the remaining term to payment of the principal amounts of fees for raising funds, and to determine the dynamics of the possibility of their repayment,

secondly, a necessary condition for maintaining liquidity is to ensure possible transformation of less liquid assets into more liquid, and the influx of additional funds to answer for the obligations; thirdly, the Bank needs to plan the optimal amount of liquidity for future periods, i.e. to assess in the aggregate liquidity of the stock, flow and forecast. This will allow him to map out a complex of measures aimed at the most rational and efficient distribution of assets and attract liabilities, as well as ways of further management of these funds.

In the field of asset management, you must enter the following amendments:

when forming a stock of highly liquid and liquid assets you need to take into account both present and future, subject to change (inflow / outflow) liabilities of the Bank;

asset allocation in credit and investment should be done on a source point in accordance with the terms of the attracting of liabilities, and further to transform itself as changes in the term structure of liabilities.



Conclusion

Therefore, commercial banks should seek to expand sources of external liquidity to improve the efficiency of operation.

We have considered the basic methods of management of liquidity of commercial banks-the management of assets and liabilities. However, these methods are applied to management of liquidity, involve separating the management of its internal and external sources. Practice shows that maintaining optimal level of liquidity affects virtually all aspects of the Bank and requires an integrated and balanced policy towards the management of its assets and liabilities.

When considering the entity liquidity, we concluded that the dynamism and variability in connection with a constant inflow and outflow of funds. Thus, liquidity of Bank's balance sheet, i.e. there are sufficient assets, which could be implemented to meet obligations, do not always give the real picture of the liquidity position of the Bank. The Bank's liquidity is in fact a broader concept than balance sheet liquidity, as this measure takes into account the adequacy of the amount of liquid assets and assets that can quickly be mobilized from other sources for timely repayment of its current liabilities.

From this it follows that the Bank in practice must implement a number of measures that would help him to balance the assets and liabilities for amounts and terms, and continue to maintain it's balance and policies on liquidity management given the cash flows causing changes in their structure. Include the following main directions of this activity:

first, the Bank should monitor the dynamics of their obligations, to analyze the remaining term to payment of the principal amounts of fees for raising funds, and to determine the dynamics of the possibility of their repayment,

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