Task

The table shows the indicators of the bank. It is required to evaluate the quality of the bank's loan portfolio (structure, profitability, reserve adequacy, management quality, resource endowment) using the indicators of the table.

Indicators
Loans issued to enterprises
Including: Overdue loans
Loans on which interest has been terminated
More than 30 days
Over 90 days
Loans issued to individuals
Including: Interest-free loans to bank employees
Overdue loans
Loans on which interest payments and principal are overdue:
More than 30 days
Over 90 days
Loans issued to other banks
Including: Overdue loans
Loans on which interest payments and principal are overdue:
More than 30 days
Over 90 days
Balance of provision for term loans
Balance of provision for overdue loans
Settlement and current accounts of legal entities
Term deposits of legal entities
Demand accounts of individuals
Term deposits of individuals
Balance asset total
Interest earned for the period
Interest paid for the period
Rescheduled loan:
Over two times
With a change in the conditions of the CA
Without changes in the conditions of the CA

In Figure 1, consider the structure of the bank's loan portfolio

Figure 1 - The structure of the bank's loan portfolio

Thus, the largest share in the bank's loan portfolio is occupied by corporate loans, they account for 79% of the loan portfolio, 135% for loans to individuals and 8% for loans to other banks.

Profitability of the loan portfolio (D) is calculated by referring the bank's total income on loans (Dk) (items of the form No. 102 "Profit and Loss Statement") on a certain date to the value of the total loan portfolio (KP) in the same period

D \u003d 6900 / (8097.5 + 1270 + 850) \u003d 0.675 or 67.5%.

The coverage ratio (Kp) is calculated as the ratio of the reserve (R) for possible losses created by the bank to the total loan portfolio (KP). The ratio shows what share of the reserve falls on one ruble of the loan portfolio and allows you to assess the riskiness of the loan portfolio.

Kp \u003d (4560 + 1200) / (8097.5 + 1270 + 850) \u003d 0.56

That is, for 1 ruble of the loan portfolio, there are 56 kopecks of the reserve.

Calculate the net loan portfolio: The value of the net loan portfolio is calculated as the difference between the total loan portfolio (CL) and the amount of the provision for possible losses on loans (R).

Chkp \u003d 8097.5 + 1270 + 850 - (4560 + 1200) \u003d 4457.5

Let's calculate the overdue payment ratio (CR), which is calculated as the ratio of the amount of the overdue principal debt (POd; account f. No. 101 - No. 458) to the total loan portfolio (KP).

Kpr \u003d (980.5 + 307.5 + 188 + 200 + 50 + 25 + 60) / (8097.5 + 1270 + 850) \u003d 0.177

Thus, 17.7% of the loan portfolio are overdue loans.

Let's evaluate the management and profitability of the loan portfolio according to the indicators presented in tables 2-3. The presented approach to the analysis of the bank's loan portfolio as a result of its lending activities, in our opinion, seems to be the most complete and accessible to external users, because based on information materials openly published by banks in relevant sources.

Table 2 - Rates of return on credit investments

	Characteristic	Coefficient calculation	Optimum,%	Indicator value
	Provides an opportunity to assess the profitability of the loan portfolio	(Proc. income - Proc. expenses)/Loan investments
	Reflects the share of the bank's interest margin in its capital	(Proc. income - Proc. expenses)/Bank's capital
	Shows the profitability of credit investments	(Proc. income - Proc. expenses)/Net loan portfolio
	Characterizes the real profitability of credit investments	Interest income (received) / Net loan portfolio

K1 \u003d (6900-5600) / (8097.5 + 1270 + 850) \u003d 0.127

K2 \u003d (6900-5600) / 98650 \u003d 0.013

K3 \u003d (6900-5600) / 4457.5 \u003d 0.292

K4 = 6900/4457.5 = 1.548

Thus, the profitability of the loan portfolio is 12.7%, the share of the bank's interest margin in its capital is 1.3%. Profitability of credit investments - 29%.

Table 3 - Bank loan portfolio management quality ratios

	Characteristic	Coefficient calculation	Optimum,%	Indicator value
	It characterizes the quality of the bank's loan portfolio management in terms of the volume of "non-performing" loan investments (prolonged and overdue)	Credit investment, not generating income / bank assets
	Details the assessment of the quality of loan portfolio management	Non-income-generating investment credit/Total investment credit
	Allows you to evaluate how much the attracted resources are used in the income-generating operations of the bank	Total investment credit/Deposits	1 or less		Characterizes the share of quality loans	(Investment credit-Overdue credit)/Investment credit	No, it is being studied in dynamics
	Reflects the degree of coverage of possible losses from defaults. (The smaller its denominator, the better)	The volume of the reserve for loans / Credit investments that do not generate income (propheted payments on the principal debt)	No, it is being studied in dynamics

K5 \u003d (307.5 + 188 + 135 + 1270) / 98650 \u003d 0.019

K6 \u003d (307.5 + 188 + 135 + 1270) / (8097.5 + 1270 + 850) \u003d 0.186

K7 \u003d (8097.5 + 1270 + 850) / (1770 + 660 + 450) \u003d 3.548

K8 \u003d (8097.5 + 1270 + 850 - (980.5 + 307.5 + 188 + 200 + 50 + 25 + 60)) / (8097.5 + 1270 + 850) \u003d 0.823

K9 \u003d (307.5 + 188 + 135 + 1270) / (4560 + 1200) \u003d 0.33

The share of non-performing credit investments in the bank's assets is 1.9%. In the loan portfolio, 18.6% of investments do not generate income. The attracted resources are insufficiently used in the income-generating operations of the bank.

The bank's losses are covered by 33%. Thus, it is worth noting that the bank works quite efficiently.

Efficient lending activities of the bank include a competent assessment of the quality of the loan portfolio, which depends on the financial situation of the borrowers. The Bank conducts a quantitative and qualitative assessment of credit risk.

An analysis of the loan portfolio of a commercial bank involves a systematic study and monitoring of the bank's lending activities, which makes it possible to assess the composition and quality of bank loans in dynamics in comparison with the average bank indicators. The analysis is not the ultimate goal, but only a tool that allows you to evaluate the credit institution to use data on the state of the loan portfolio for decision-making by various departments of the bank.

The main parameters for assessing the quality of a loan portfolio are its level of credit risk, profitability and liquidity. It is believed that when lending and when the bank performs other operations, the bank balances between these parameters.

To assess the quality of the loan portfolio, the bank needs to carry out a structural analysis of the loan portfolio in various areas in various areas (type of borrower, quality of loans, terms). One of the most important conditions for reducing credit risk is the absence of concentration of the loan portfolio on various grounds. Banks should form diversified loan portfolios, that is, avoid issuing a large number of loans that can be equally affected by the same external factor. In this regard, the bank needs to have a high and reliable assessment of the quality of the loan portfolio.

The conclusions on the analysis of the quality of the loan portfolio should determine the system of measures that will be implemented in the processes of managing the level of credit risk, liquidity and profitability and will ensure the leveling of negative factors in the bank's activities and its development in the direction of creating new value.

According to the opinion of the Bank of Russia, the main reason for the financial losses of banks was the increased concentration of risks on business, aggravated by the nature of investment objects (investment projects).

To identify the bank's credit risk, it is necessary to determine its areas (zones).

Characteristics of credit risk zones:

• - decrease in the creditworthiness of the borrower;
• - deterioration in the quality of the loan portfolio;
• - occurrence of overdue principal debt and interest payments;
• - emergence of problem loans;
• - emergence of business risk factors;
• - reliability of debt repayment sources.

All risk areas are interconnected, therefore, in order to determine credit risk, the bank should analyze its areas in aggregate. Establish a control and regulation system that takes into account the interconnectedness of all credit risk factors.

When lending to a borrower, the greatest importance should be given to assessing its financial situation. Losses arise as a result of an artificial overestimation of the quality category of loans or the use of inefficient methods for analyzing the quantitative and qualitative indicators of the borrower, such problems arise due to the lack of a standardized approach to identifying and managing credit risk.

Monitoring of the bank's credit risk is carried out on an ongoing basis for the entire portfolio of loan and equivalent debt, as well as for other financial instruments that carry credit risk. The purpose of monitoring the bank's credit risk is to develop adequate management decisions. The result of monitoring the bank's credit risk is a daily review of the amount of the provision for possible losses on loan and equivalent debt in order to maintain the provision at a level corresponding to the quality of the bank's loan portfolio. Credit risk monitoring is carried out on a dynamic basis, taking into account the retrospective and prospective analysis of the bank's loan portfolio (see Table 3) .

Table 3 - Correspondence of properties and criteria for assessing the quality of the bank's loan portfolio

The quality of the loan portfolio of a commercial bank can be assessed on the basis of financial groups of indicators:

1) Aggregate indicator of the quality of the loan portfolio, calculated as the ratio of the total risk of the loan portfolio to the bank's equity capital. This indicator gives a rating assessment of asset quality (see Table 4).

Table 4 - The value of the aggregate indicator of the quality of the loan portfolio

• 2) Sufficiency of bank reserves to cover losses from loans. This coefficient is estimated according to four relations:
  • - considered in dynamics, growth is a positive trend (1):

Reserve adequacy = RR to cover / Income generating loans, (1)

where, RB to cover - the bank's reserves to cover losses.

The value of this indicator fluctuates up to 50%, a decrease in the indicator means the choice of a more correct credit policy (2):

Reserve adequacy = Loan RR / Loan portfolio, (2)

where, RB for loans - reserves to cover losses on loans.

It characterizes the percentage of loans written off. Favorable is the low value of the ratio, not higher than 1.5% (3):

Reserve adequacy = Write-off from the reserve / Volume of the loan portfolio, (3)

where, Write-off from reserve - write-off from reserves to cover losses on credit risks.

considered in dynamics. The decrease in this indicator is a positive trend (4):

Reserve Adequacy = Problem Loans / Loan Portfolio Size, (4)

where, Problem loans are doubtful and lost loans.

• 3) Profitability of the bank's loan portfolio
• - the yield to which the bank should strive is 1.4% (5):

Yield \u003d% W +% D / Volume of the loan portfolio, (5)

Where, % З - interest received from borrowers;

% D - interest paid on deposits and interbank loans.

• - similar to the previous coefficient, the level of this indicator ranges from 10% to 20% /
• - the criterion value is set by the bank itself. It is necessary to consider this coefficient in dynamics, the positive trend of which is growth (6):

Yield = % received from the loan / Loans that do not generate income, (6)

4) Quality of loan portfolio management (7, 8):

Quality of management KP = Loans / Deposits, (7)

Quality of management KP = Loans / Assets, (8)

where, KP management quality is the quality of loan portfolio management.

The Bank considers these indicators in a dynamic series. Both ratios reflect the degree of credit activity of the bank. If the value of the ratio of the amount of loans granted to the bank's assets is above 65%, it is recommended to revise the bank's credit policy.

• 5) The Bank's reasonableness policy in the field of risks considers the dynamics of a group of indicators:
  • - each type of classified loans, volume of problem loans, volume of interest-free loans;
  • -volume of transactions with insiders;
  • - the volume of large loans, the volume of overdue loans.

The results of the assessment of the bank's loan portfolio may become the basis for reviewing the bank's credit policy.

Evaluation of the effectiveness of the loan portfolio is the most important task of economic analysis, the solution of which is based on the application of the coefficient method. The essence of this method lies in the construction of a system of interrelated indicators that comprehensively characterize the state and dynamics of the object of study.

The system of indicators for evaluating the effectiveness of the loan portfolio is calculated based on the results of the commercial bank's activities for the year. When calculating for a quarter or half a year, it is necessary to bring the system of indicators to the annual level.

The main indicators that characterize the assessment of the effectiveness of the loan portfolio of a commercial bank are the following:

• - effective rate;
• - net present income;
• - internal rate of return;
• - profitability;
• - payback period.

Effective rate) - the rate measures the real relative income that is received as a whole for the year. In other words, the effective rate shows which annual compound interest rate gives the same financial result as m - the number of redemption payments per year at the rate.

The effective rate is determined in accordance with the following equation (9):

(1+Sef) = (1+Sef / m), (9)

where m is the number of redemption payments per year;

n is the term of the loan in years.

The following follows from the equality (10):

Sef = (1+Sef / m). (10)

Net present income (DNP) - characterizes the overall absolute result of lending activities, its final effect. Under net present income, the difference between discounted income and credit investments is taken at a given time. If income and credit investments are presented as a resource flow of income, then the net present value is equal to the given value of this flow. Net present value is the basis for most performance measures.

Loan portfolio is the total amount of loans issued by the bank. It is considered by the bank as a single object of management with a structure (directions of investments and types of loans, types of borrowers, lending conditions, etc.), profitability, and cumulative risk. Loan portfolio characteristics:

• the amount of loans issued;
• weighted average interest rate;
• weighted average term of crediting;
• riskiness (the share of overdue loans and provisioning);
• concentration (share of large loans);
• diversification (the share of a group of loans prevailing on any basis).

The assessment of the loan portfolio is based on the analysis of its quality. Bank of Russia regulations establish 4 groups for assessing the quality of loans:

• 1st - standard loans (virtually risk-free);
• 2nd - non-standard loans (moderate risk of default);
• 3rd - doubtful loans (high risk of default);
• 4th - bad loans (the probability of return is almost zero, the loan represents the actual losses of the bank).

Loan portfolio structure

The volume and structure of the loan portfolio of a particular commercial bank is determined by a number of factors:

1. The specifics of the market sector served by the bank. The influence of this factor on the volume and structure of the loan portfolio is determined by the credit specifics of a commercial bank in certain sectors of the economy, types of loans and borrowers;

2. The size of the bank's capital. This factor determines the maximum loan amount (limiting factor) provided to an individual borrower, and the bank as a wholesale or retail lender;

3. Rules for regulating banking activities. This factor determines the establishment of credit risk standards, restriction and / or prohibition on the provision of certain types of loans. The degree of influence of this factor is determined by legislation in the form of resolutions of the National Bank of the Republic of Kazakhstan, approval of instructions and mandatory standards for banking activities;

4. Credit policy of the bank, which defines the goals and priority areas for lending to a particular commercial bank;

5. Experience and qualifications of bank managers. The influence of this factor is determined by the fact that the bank provides loans that cannot be professionally assessed by the bank's specialists;

6. Expected bank income from lending operations. This factor provides for the use by the bank of those types of lending that provide a higher level of profitability for the bank;

7. The level of profitability of other directions of placement of funds. So, under equal conditions of profitability of various types of assets of a commercial bank, preference is given to the least risky areas for investing funds, although they are less profitable.

Loan portfolio quality

The quality of the loan portfolio is understood as such a property that is able to maximize the level of profitability with an acceptable level of credit risk and liquidity. Let us consider the content of individual criteria for assessing the quality of a commercial bank's loan portfolio.

1. Degree of credit risk. Credit risk associated with a loan portfolio is the risk of loss that arises from a default by a lender or counterparty. The loan portfolio of a commercial bank is subject to the risk of losses arising from a default by a lender or counterparty. Loan portfolio is segmented into:

• loans granted to legal, physical, financial organizations;
• factoring debt;
• issued guarantees;
• discounted bills, etc.

The assessment of the degree of risk of the loan portfolio has its own peculiarities. First, the total risk depends on:

• the degree of credit risk of individual segments of the portfolio, the assessment methods of which have both common features and features associated with the specifics of the segment;
• diversification of the structure of the loan portfolio and individual segments.

Secondly, to assess the degree of credit risk, a system of indicators is needed that takes into account many aspects.

2. The level of profitability of the bank's loan portfolio. Since the purpose of the bank's operation is the maximum profit with an acceptable level of risks, the profitability of the loan portfolio is a criterion for assessing its quality. Elements of the loan portfolio can be divided into two groups: income-producing and non-income-producing assets. The latter group includes interest-free loans, loans with frozen interest and with a long delay in interest payments.

In foreign practice, with a long overdue debt, interest is practiced by refusing to accrue them, as the main thing is the return of the principal debt.

In Russian practice, the mandatory accrual of interest is regulated. The level of profitability of the loan portfolio is determined both by the level of the interest rate on the loans provided, and by the timeliness of payment of interest and the amount of the principal debt.

The profitability of the loan portfolio of a commercial bank has a lower and an upper limit. The lower limit is determined by the cost of conducting credit operations (expenses for personnel, maintenance of loan accounts, etc.) plus the interest payable for the resources invested in this portfolio. The upper limit of the portfolio is the level of sufficient margin. The profitability of the loan portfolio of a commercial bank directly depends on the volume and structure, which are determined by a number of factors. Let's highlight the main ones:

• The specifics of the market sector served by the bank. The influence of this factor on the volume and structure of the loan portfolio is determined by the credit specifics of a commercial bank in certain sectors of the economy, types of loans and borrowers;
• The size of the bank's capital. This factor determines the maximum loan amount (limiting factor) provided to an individual borrower, and the bank as a wholesale or retail lender;
• Banking regulation rules. This factor determines the establishment of credit risk standards, restriction and / or prohibition on the provision of certain types of loans. The degree of influence of this factor is determined by legislation, the approval of instructions and mandatory standards for banking activities.

In modern conditions, banks seek to increase profits by offering customers a large number of loan products. Thus, two goals are achieved at once: on the one hand, in order to reduce credit risk, the bank diversifies the loan portfolio, which makes it possible to compensate for possible losses from some transactions with profit from others.

3. The level of liquidity of the loan portfolio. Since the level of liquidity of a commercial bank is determined by the quality of assets and the quality of the loan portfolio, it is important that the loans provided by the bank are returned within the terms established by the agreements, whether the bank could sell loans due to quality and profitability. The higher the share of loans classified in the best groups, the higher the liquidity.

In favor of applying the criteria for assessing the quality of a commercial bank's loan portfolio (the degree of credit risk, the level of profitability and liquidity), the following arguments. The low risk of elements of the loan portfolio does not mean its high quality: loans of the first category of quality, which are provided to first-class borrowers at low interest rates, do not bring high income. As a rule, the high liquidity inherent in short-term assets of a credit nature brings a low interest income to a commercial bank.

Thus, credit risk is not the only criterion for the quality of the bank's loan portfolio, since the concept of the quality of the loan portfolio is broader and is associated with liquidity risks and loss of profitability by the bank. However, the significance of these criteria will vary depending on the conditions, place of operation of the bank, as well as its strategy.

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The priority goal of the credit policy is to ensure the highest profitability with strict restrictions on the reliability of loans. The achievement of this goal is facilitated both by the tools of the credit policy itself, and by individual elements of other types of bank policies (financial, interest, personnel, etc.). The state has introduced a system of mandatory liquidity and banking risk ratios that regulate the minimum values ​​of certain indicators of a commercial bank's performance. In general, there are a number of indicators that allow assessing the effectiveness of the bank's credit policy.

In general, the term "efficiency" means the productivity of using resources in order to achieve the highest possible income. In order to generate such income, the bank needs to constantly compare benefits and costs. The main problem of ensuring the economic efficiency of the credit policy of a commercial bank is the problem of choice regarding what, how and how will be produced, how to distribute resources, capital and profit.

There are two approaches to the concept of "the effectiveness of the credit policy of a commercial bank" in the scientific literature:

Efficiency is the ratio of resource costs and the results that are obtained from the use of the former;

Efficiency is understood as a socio-economic category, which reflects the influence of the methods of organizing the work of participants in activities on the level of results achieved by them.

Usually, when analyzing the effectiveness of the credit policy of commercial banks, they rely on the first version of the definition. In this case, the efficiency of one particular bank, and the banking system as a whole, is determined based on the proximity of the values ​​of the performance indicators of a commercial bank to a certain, already defined efficiency boundary.

Profit or loss is a quantitative reflection of the efficiency of a commercial bank, that is, an absolute indicator. The greater the amount of profit and the higher the level of profitability, the more efficiently a commercial bank functions, the more stable its financial condition and the more effective the credit policy chosen by the bank can be considered.

The data of the financial plan, and the financial statements of a commercial bank are the information base for evaluating the effectiveness of the bank's activities.

N.N. Muravyov and O.S. Baranchuk suggest using the following indicators to assess the effectiveness of the credit policy pursued by a commercial bank:

– profitability ratio of the loan portfolio (K1), which reflects the share of the bank's interest margin in the gross loan portfolio;

– interest margin ratio (K2), which reflects its share in the total capital of the bank;

- the profitability ratio of credit investments (K3), which reflects the share of the interest margin in the bank's net loan portfolio;

– coefficient of real return on credit investments (K4), which reflects the share of interest income in the net loan portfolio.

The target values ​​that you need to focus on when evaluating these coefficients are presented in Table 1.

Table 1.

Normative indicators of the effectiveness of the ongoing credit policy in a commercial bank

In order to ensure the liquidity of the loan portfolio as a whole, it is necessary to comply with the standards established by the Central Bank (instantaneous, current and long-term liquidity of the bank). It should be noted that the achievement of the statutory normative values ​​of these indicators is not so much an indicator of the effectiveness of managing the liquidity of the loan portfolio, but a prerequisite for the further lending activities of a commercial bank.

An important indicator of the efficiency of commercial banks can be considered the return (profitability) of capital (Rk), which is determined by formula (1):

where is the net profit of the bank;

K - capital, in relation to which the profitability is calculated.

This indicator assesses how much net profit is received per 1 ruble of own funds of a commercial bank.

Another indicator used to analyze the effectiveness of the credit policy of a commercial bank is the profitability or profitability of banking assets ():

(2)

Where is the net profit of the bank;

A - the value of the assets of a commercial bank.

This ratio shows the bank's loan portfolio management policy and shows how much profit before tax falls on 1 ruble of commercial bank assets. With a low value of this indicator, one can speak about the conservative policy of the bank, or about excessive operating expenses. With a high value of this coefficient, we can say that the bank successfully manages its assets.

For a commercial bank, the effectiveness of credit policy is closely related to the concept of margin and spread. A number of indicators and statistical techniques are used to evaluate them.

An important direction in the analysis of the effectiveness of the credit policy of a commercial bank is the calculation and evaluation of financial ratios K1, K2, K3, K4, which were discussed above.

When carrying out the above calculations of the coefficients, it is necessary to correctly evaluate the results obtained, determine the factors of positive and negative impact on the financial result; develop measures aimed at reducing the impact of negative factors and increasing the efficiency of the bank .

Thus, usually when analyzing the effectiveness of the credit policy of commercial banks, they rely on the fact that the effectiveness of the credit policy of a commercial bank is the ratio of resource costs and the results that are obtained from the use of resources. The data of the financial plan, and the financial statements of a commercial bank are the information base for evaluating the effectiveness of the bank's activities. You can use the following indicators to assess the effectiveness of the credit policy pursued by a commercial bank: the profitability ratio of the loan portfolio, the interest margin ratio, the profitability ratio of credit investments, the coefficient of real profitability of credit investments. In order to ensure the liquidity of the loan portfolio as a whole, it is necessary to comply with the standards established by the Central Bank (instantaneous, current and long-term liquidity of the bank). An important indicator of the effectiveness of commercial banks can be considered the return (profitability) of capital and the profitability or profitability of bank assets. For a commercial bank, the effectiveness of credit policy is closely related to the concept of margin and spread. For the highest efficiency, a commercial bank always acts in such a way that its margin is positive, therefore, attracting a loan in banking practice is almost always cost-effective.

Bibliography:

1. Luksha L.M. Credit policy as a tool to improve the efficiency of a commercial bank / L.M. Luksha // Trajectories of reforming the Russian economy, 2014. - 323 p.
2. Agibalov A.V. On assessing the effectiveness of the loan / A.V. Agibalov, M.V. Gorelkin // Bulletin of the Voronezh State Agrarian University, 2016. - No. 4. - 240 p.
3. Shakimova G.Z. Evaluation of the effectiveness of a commercial bank / G.Z. Shakimova, // Scientific dialogue: finance and credit, 2015. - 359 p.
4. Muravieva N.N. Theoretical substantiation of indicators of the effectiveness of portfolio management of mortgage loans in commercial banks / N.N. Muravyova, O.S. Baranchuk // International Journal of Humanities and Natural Sciences, 2017. - No. 5. - 129 p.

Khalilova M.Kh. 1 , Sergeeva S.M. 2

1 ORCID: 0000-0001-7312-2517, Doctor of Economics, Professor, 2 ORCID: 0000-0003-0105-9621, Master of Economics, St. Petersburg State University

ASSESSMENT OF THE QUALITY OF THE BANK'S LOAN PORTFOLIO

annotation

The article deals with the problems of evaluating the bank's loan portfolio, analyzes changes in the quality of the loan portfolio. Recommendations are proposed for making managerial decisions by the bank's risk management, which can be aimed at improving its efficiency.

Keywords: banks, bank credit risk, bank loan portfolio, bank risk management.

Khalilova M. Kh. 1 , Sergeeva S.M. 2

1 ORCID: 0000-0001-7312-2517, PhD in Economics, Professor, 2 ORCID: 0000-0003-0105-9621, Master of Economics, St. Petersburg State University

QUALITY ASSESSMENT OF THE BANK LOAN PORTFOLIO

Abstract

The article investigates the assessment of the loan portfolio, analyzes changes in the quality of the loan portfolio and proposes recommendations to take effective decisions of the risk management of the bank, which would be aimed at improving its quality.

keywords: banks, credit risk of the bank, the bank's loan portfolio, bank risk-management.

The Russian banking system periodically encounters crisis phenomena that have a significant impact on the conditions of economic activity and its development. Now the economy and the banking sector of Russia are experiencing negative processes caused by the devaluation of the national currency, higher interest rates and increased inflationary processes. Therefore, the relevance of this study is due to the need to improve the theoretical and practical methods for building a comprehensive assessment system and methods for effective management of the quality of loan portfolios of Russian banks.

The purpose of the study is to develop methodological and practical approaches that allow assessing the quality of the loan portfolio, and suggesting recommendations for making effective decisions on the part of the bank's risk management that can improve its quality.

Lending continues to be the main type of banking activity. This makes the credit risk assessment process a top priority for risk management. Banks develop policies and procedures to identify, control and manage credit risk, as well as related provisions and methods. An important role in assessing credit risk is played by the identification of the main segments in order to assess the financial condition of the counterparty.

The management structures of the bank, the Board of Directors and the Management Board of the Bank, as well as the Credit Committee develop and approve the Bank's credit policy, regularly conduct risk reports that allow assessing the state of the loan portfolio and assessing the effectiveness of the ongoing credit risk management within the framework of the assumed powers.

The source of bank credit risk in scientific research on risk management and in banking practice is considered default, that is, the actual non-fulfillment or incomplete fulfillment by the client-borrower of the prescribed terms of the loan agreement (contract).

The formation of credit risk occurs due to various factors that depend both on the borrower and on the policy of the bank. The most significant factors that have a strong influence are the creditworthiness of the counterparty and the nature of the transaction. The essential factor influencing the value of a bank's credit risk is the organization of the credit process itself.

Significant components of the organization of the credit process, allowing to manage bank credit risk, are: development of methodological documents that would allow regulating credit transactions; establishing clear procedures for reviewing questionnaires and applications; the reliability of the obtained permits for issuing a loan, the development of mandatory requirements for maintaining a borrower's credit file; effective control over the existence of justification for the loan and the reality of the sources for its repayment; implementation of the work of the analytical department of the bank, as well as a high degree of customer awareness.

When evaluating the quality of the loan portfolio, experts use a system that includes both absolute and relative indicators that allow taking into account the share of individual loans in the structure of the loan portfolio.

The loan portfolio quality ratio can be represented as the ratio of overdue debt on credit operations to the sum of all debt on loans, that is, loan debt taken without interest:

where PLC - overdue loans,

ZS - debt on loans.

According to the methodological recommendations of the Central Bank of the Russian Federation, it is determined by the ratio of the estimated reserve for possible losses and losses on loans to the entire amount of debt on the principal debt. A value greater than 10% indicates a high value of the bank's credit risk. On Fig. 1 shows the dynamics of changes for the 30 largest banks of the Russian Federation.

Rice. 1 - Dynamics of overdue debts and RVPS.

After analyzing the analytical materials published by the Central Bank of the Russian Federation, it was revealed that the annual growth rate of loans is growing at a slower pace than the growth in loan arrears and equivalent debt. This indicates an ineffective bank management policy.

To solve problems with problem loans, banks are beginning to restructure previously issued loans, hoping for the recovery of borrowers. Due to the worsening economic situation, the amount of overdue debt is increasing. In the long term, banks worsen the quality and structure of the loan portfolio even more (Fig. 1, Table 1).

Table 1 – Loan portfolio structure

	01.01.2015	01.04.2015	01.07.2015	01.10.2015	01.01.2016	01.02.2016
I quality category	63,80%	63,30%	61,70%	61,50%	58,60%	57,20%
II quality category	24,70%	23,60%	24,50%	24,80%	27,20%	28,30%
III quality category	5,90%	7,20%	7,20%	7,20%	7,70%	7,90%
IV and V quality categories	5,60%	5,90%	6,60%	6,50%	6,50%	6,60%

All banks, trying to improve the quality of their loan portfolio, face the choice of their strategy. Some lending institutions prefer to build a risk-neutral loan portfolio that is characterized by a low degree of risk and a low level of return.

A number of banks prefer to form a balanced portfolio of loans, in which an increase in the share of risk is possible, which makes it possible to strengthen their competitive advantages or attract new borrowers.

The most preferable is the optimal portfolio of loans. It implies full compliance between the general line of development of the banking structure and planned indicators.

A well-formed portfolio of loans is able to provide the maximum level of profit with a given value of credit risk and the existing liquidity of the bank balance.

In order to manage credit risk, banks pursue a balanced limit policy. Banking limits are set in the context of the areas of activities carried out, taking into account the specifics of the operations carried out.

The study presents a set of key parameters, according to which the amount of limits is set for the bank's counterparties individually in order to limit the risks of transactions carried out with them:

• the creditworthiness of the borrower and its financial stability;
• credit history of the client and his reputation;
• industry and regional affiliation of the borrower;
• the specificity of the requested loan product and the risks associated with it;
• the level of collateral for a credit transaction;
• market conditions and macroeconomic situation observed in the industry, region and country.

When managing credit risk, banks set portfolio limits to limit the total amount of credit risk to borrowers associated with the Bank, to companies belonging to the same industry, and to transactions with customers exposed to banking risks.

For lending operations, banks create reserves that are adequate to the risks they take on. Throughout the term of the concluded loan transactions, banks periodically monitor the creditworthiness of borrowers and their payment discipline, evaluate the offered collateral and carry out subsequent control over changes in its liquidity and market value, as well as regularly monitor the entire loan portfolio of the bank, taking into account the main client segments.

In order to introduce various approaches to bank credit risk management based on world practice, as well as the recommendations of the Basel Committee on Banking Supervision, credit institutions are developing special credit risk assessment methods that allow assigning an internal rating to each borrower and assessing the probability of default. The models being developed make it possible to estimate the value at risk at the time of the borrower's default and the expected amount of losses. In order to increase the profitability of ongoing lending operations and the efficient use of banking economic capital, the RAROC indicator is integrated into the lending process - risk-adjusted Return on Capital, which implies the establishment of a target value of the relative indicator and subsequent monitoring of its compliance . Periodically, banks conduct stress testing of their loan portfolio, which makes it possible to identify the possible consequences of macro- and microeconomic events and adequately respond to their manifestations.

Given the growth of currency and macroeconomic risks, banks are developing measures aimed at strengthening approaches to managing the quality of the loan portfolio. In particular, banks are beginning to introduce increased requirements for the financial stability of the borrower and the quality of the security offered to him for a number of industries and areas of activity that may be most affected or have already been affected by the worsening market situation. Priority is given mainly to lending to customers with high creditworthiness and who are able to provide reliable and liquid collateral for existing liabilities to banks.

Thus, when analyzing banking activities, it is the structure and quality of the bank's loan portfolio that are significant indicators. In addition, these indicators can influence the rating assigned to a credit institution. Therefore, the bank's risk management system should be built in such a way as to ensure the greatest profit from lending activities while minimizing the credit risk associated with it. This is a rather difficult task that requires a competent approach.

Literature

1. Khalilova M.Kh., Belousova A.A. Sufficiency of own funds (capital) of the bank: assessment and forecast // Economics and Entrepreneurship. 2014. No. 12-4 (53-4). pp. 516-519.
2. Khalilova M.Kh., Polynov S.M. Bank Financial Stability Indicators // Financial World. Edited by V. V. Ivanov and E. A. Pochikovskaya. Moscow, 2014. S. 60-67.
3. Federal Law No. 395-I of December 2, 1990 “On Banks and Banking Activities”.
4. Regulation of the Bank of Russia dated March 26, 2004 N 254-P “On the procedure for the formation by credit institutions of reserves for possible losses on loans”.
5. Bank of Russia Instruction No. 139-I dated December 3, 2012 “On Mandatory Banking Ratios”.
6. Volkova, O.N. Analysis of factors influencing the formation of the loan portfolio of Russian banks / O.N. Volkova, S.I. Gruzdev // Finance and credit. 2013. No. 45(183)
7. Grebenik, T.V. The quality of the loan portfolio of Russian banks: features of assessment and management / T.V. Grebenik, E.P. Ternovskaya // Electronic periodical "Naukovedenie". - 2014. - No. 3 (22).
8. Pustovalova T. A., Kutuev R. R. Credit risk management of the credit portfolio of a commercial bank // Bulletin of St. Petersburg State University. - 2008. - Ser. 8. - Issue 1. - 40 p.

References

1. Khalilova M.KH., Belousova A.A. Dostatochnost’ sobstvennykh sredstv (kapitala) banka: otsenka i prognoz // Ekonomika i predprinimatel’stvo. 2014. No. 12-4 (53-4). S. 516-519.
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3. Federal'nyy zakon dated December 2, 1990 N 395-I “O bankakh i bankovskoy deyatel'nosti”.
4. Polozheniye Banka Rossii dated March 26, 2004 N 254-P “O poryadke formirovaniya kreditnymi organizatsiyami rezervov na vozmozhnyye poteri po ssudam”.
5. Instruction Banka Rossii dated 03.12.2012 N 139-I “Ob obyazatel’nykh normativakh bankov”.
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