Bank asset management methods. KB asset management methods
CONTENT
INTRODUCTION………………………………………………………………………..3
1. THEORETICAL ASPECTS OF BANK ASSETS MANAGEMENT: ESSENCE, PURPOSE, CONTENT…………………………………..7
1.1 Bank asset management: essence, purpose, content…………...7
1.2 Methodology for analyzing the quality of bank asset management: information base, methods, quality indicators……………………………23
1.3 Features of bank asset management during the financial crisis...41
2. ASSESSMENT OF THE QUALITY OF ASSET MANAGEMENT OF JSC NATIONAL BANK TRUST FOR 2008-2010………………………….49
2.1 Assessment of the composition, structure and dynamics of assets of OJSC “National Bank Trust” for 2008-2010……………………………………………………………………… ……………..51
2.2 Analysis of the riskiness of assets of OJSC “National Bank Trust” for 2008-2010……………………………………………………………………… …………………………………….54
2.3 Analysis of the return on assets of OJSC “National Bank Trust” for 2008-2010…………………………………………………………………… ……………………………….60
2.4 Analysis of the liquidity of assets of OJSC “National Bank Trust” for 2008-2010……………………………………………………………………………………… ……………………………….63
2.5 Analysis of portfolio investment management of OJSC “National Bank Trust” for 2008-2010……………………………………………………………………… ……………..70
3. IMPROVING THE QUALITY OF ASSET MANAGEMENT OF OJSC NATIONAL BANK TRUST…………………………………………………………….74
3.1 Justification of the need to improve the quality of asset management of OJSC National Bank Trust…………………………………………………………..74
3.2 Development of measures to improve the quality of asset management of OJSC National Bank Trust…………………………………………………………..80
3.3.Economic justification for the proposed measures…………………90
CONCLUSION……………………………………………………………………..97
LIST OF REFERENCES……………………………………100
APPLICATIONS……………………………………………………………………………………….105
INTRODUCTION
Economists have developed different points of view regarding the issues of determining bank assets. The lack of a clear formulation does not allow users, both internal and external, to get a complete picture of the actual value of the bank's assets. This leads to difficulties in carrying out active operations, impedes the effective assessment and minimization of associated risks, high-quality control over the structure of equity funds and the determination of the reliable value of future cash flows. Based on this, the relevance of the problem of considering bank assets is great.
The quality of a bank's assets affects all aspects of banking operations. If borrowers do not pay interest on their loans, the bank's net profit decreases. In turn, low income can cause a lack of liquidity. When cash flow is insufficient, the bank must increase its liabilities simply to pay the administrative costs and interest on its existing loans. Low and unstable net profit makes it impossible to increase the bank's capital. Poor asset quality directly affects capital. If borrowers are expected to default on principal payments on their debts, assets demand their value and capital decreases. And too many outstanding loans are the most common reason for bank insolvency.
The solution to the problem of allocating funds is those assets that can bring the highest income at an acceptable level of risk. The conditions for sound bank management are to ensure the ability to satisfy the demands of depositors and the availability of funds sufficient to meet the credit needs of the bank's clients.
Capital adequacy and the level of accepted credit risks depend on the quality of banking assets. The structure and quality of assets largely determine the liquidity and solvency of the bank, and therefore its reliability. If the bank is reliable, borrowers will turn to it, and the bank will be trusted. And the more borrowers, the more profitable it is for the bank. The number of business negotiations increases - the bank's profit increases. The health of the economy of the entire country and the world depends decisively on the clear and competent activities of banks. The bank should strive to create a rational structure of assets, which depend, first of all, on the quality of assets. Therefore, the problem of considering the quality of assets of National Bank Trust OJSC is so important. Asset quality is an extremely fluid parameter and therefore needs to be constantly analyzed and assessed. A competent and accurate analysis of the quality of assets allows us to identify important trends in the life of the bank and determine due to which operations profitability (unprofitability) has increased or decreased; assess changes in equity and immobilized assets; track the growth (decrease) of raised funds; identify the need to change (maintain) the priorities and methods of the bank’s activities.
Based on the identified relevance of this topic, purpose writing a thesis is the development of measures to improve the quality of asset management of OJSC National Bank Trust.
To achieve this goal, it is necessary to solve the following tasks:
- determine the essence and structure of assets of commercial banks;
-identify the purpose and content of bank asset management;
-determine the features of managing bank assets during the financial crisis;
- systematize methods for analyzing the quality of bank asset management;
-evaluate the quality of asset management of OJSC National Bank Trust for 2008-2010. using the following types of analysis: assessment of the composition, structure and dynamics of assets, analysis of riskiness, profitability and liquidity of assets, analysis of portfolio management of investments of OJSC National Bank Trust;
-identify the main problems of improving asset management in a commercial bank;
- justify the need to improve the quality of asset management of OJSC National Bank Trust.
Object thesis is OJSC National Bank Trust.
Subject Thesis work is asset management of OJSC National Bank Trust.
As information base To write the thesis, the author used:
- the current regulatory and legislative framework governing bank lending to potential borrowers;
-textbooks and teaching aids on a given topic;
- current periodical literature (magazines “Finance and Credit”, “Banking Review”, “Analytical Banking Journal”, “Banking”, “Banking Management”, etc.);
- official reporting of OJSC CB National Bank Trust for 2008-2010.
The following were used in writing the work: research methods: system analysis, logical approach to research, information processing through analysis.
Theoretical basis qualifying work consisted of the works of Russian and foreign scientists on the problems of finance, banking, management and asset management. In addition, in preparing the work, regulatory and legal documents on the topic were used.
Particular attention in the work is paid to theoretical aspects, including the specifics of using foreign experience in modern domestic conditions, as well as applied issues of organizing the asset management process in Russian banks.
Practical part of the work based on internal reporting and documents of OJSC National Bank Trust.
The final qualifying (diploma) work consists of an introduction, three chapters, a conclusion, a list of used sources and literature, and an appendix.
CHAPTER 1. THEORETICAL ASPECTS OF BANK ASSETS MANAGEMENT
1.1 Bank asset management: essence, purpose, content
Currently, specific credit institutions, such as commercial banks, increasingly satisfy all kinds of needs of national economic entities for cash and non-cash funds. In this regard, banks have to decide how to create a stable and promising portfolio of assets that meets modern economic requirements and regulations of supervisory and regulatory authorities. Particular attention should be paid to financial assets in the overall portfolio; it is this category of assets that represents the economic basis of the bank’s operations for the profitable placement of available resources at the bank’s disposal. In order to be able to talk about banking assets as a component of the overall portfolio of assets, and also to show the role and place in this portfolio, it is necessary to understand the definition of the term “asset”. The outlined approaches to defining assets in the economic literature mainly come down to identification with the concept of “financial investments” and are limited to such bank balance sheet items as securities and contributions to the authorized capital of other organizations. In Russian legislation there is no clear formulation of the assets of a commercial bank, but only occasionally there are individual elements of this, essentially key, term that characterizes the active operations of a bank and is used in the theory and practice of the functioning of banks.
Solving the issues of determining financial investments in the Russian economy at the current evolutionary stage of development does not allow users, both internal and external, to get a complete picture of the actual value of the bank’s assets and liabilities. This, in turn, leads to difficulties in carrying out active operations, hinders the effective assessment and minimization of associated risks, high-quality control over the structure of equity (capital) and the determination of the reliable value of future cash flows. Based on this, the relevance of the problem of considering bank assets is so great.
The term “asset” comes from the Latin Activus, which means “active”; assets characterize tangible and intangible values in monetary terms, their composition and placement. The American Financial Accounting Standards Board (FASB) conceptually defines “assets” as the expected benefits in future financial periods obtained or controlled by an economic entity as a result of transactions or events of past periods. A bank asset is the result of the bank's operations to create, use and move cash and financial resources, as a result of which an increase in economic benefits is expected over a certain period of time in the form of receipt or increase in the value of assets, as well as a possible decrease in liabilities. In the International Financial Reporting Standards, a financial asset is defined as cash, an equity instrument of another entity, a contractual right to receive cash or transfer beneficial financial instruments from another entity, or mutually exchange financial instruments for beneficial for yourself conditions .
Assets include two important components: property and bank rights
Property- this is a set of funds that have value due to their physical and payment properties (buildings, equipment, money in their cash and non-cash form).
Rights jar are represented by the right of ownership of any asset that involves the receipt of values (for example, a security, bill of exchange, check, bond, share, etc.), the right to receive income (joint activities with other business entities, repayment of a security), or debt requirements (loan debt for various types of debtor loans, leasing, factoring, etc.).
Let us also consider the composition of financial investments based on the study and analysis of the works of Russian scientists directly involved in financial and credit problems of both the Russian economy in general and the banking sector in particular. From the position of Russian economists, financial investments include:
-securities, both debt and equity;
-loans to other organizations;
-contributions to the authorized capitals of other organizations;
-deposits in banks;
-accounts receivable.
International financial reporting standards include derivative securities as financial assets. Derivative financial assets are not only securities, but also any contract that has the following features:
-value changes as a result of changes in a specific interest rate, commodity price, exchange rate, price or rate index, credit rating or credit index, or other variable;
- its acquisition does not require initial investment or requires insignificant initial net investment;
- calculations on it are carried out in the future.
Examples of derivative financial assets are financial options, futures and forward contracts, interest rate and currency swaps. Derivative financial assets give rise to rights and obligations that result in the transfer by one party to a contract to the other party of one or more financial risks contained in the underlying financial asset. The purpose of derivative financial assets is insurance (hedging) against certain financial risks, or generating income from trading (speculative) operations.
One type of financial investment is loans issued to other organizations, i.e. other banks or legal entities. The term "organization" also applies to individuals, partnerships, joint stock companies, trusts and government agencies.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, except:
- those that the organization intends to sell in the near future, and those that are part of a portfolio of similar assets, transactions in which indicate a desire to make a profit either from price fluctuations in the short term or as dealer margin;
- those that the owner, due to reasons other than deterioration in the quality of the loan, may not receive back (a significant part of his initial investment).
Financial investment objects do not include cash. However, they are an integral part of another, representing the obvious theoretical and practical significance of the economic category - investment. In accordance with the Federal Law of February 25, 2001 No. 39-F3 “On investment activities in the Russian Federation, carried out in the form of capital investments,” investments are defined as cash, securities, other property, including property rights, other rights having monetary valuation invested in objects of entrepreneurial or other activity in order to make a profit or achieve another beneficial effect.
However, when comparing the concepts of “financial investments” and “investments”, the impression may arise that some elements of these definitions are superimposed on each other, mixed with each other, and when used in different contexts of the component parts, the meaning of the term used is lost, since there is no unambiguous semantic characteristic. This once again confirms the relevance of the problem of thoroughly elaborating the theoretical provisions of the study of the system of financial assets of commercial banks.
As defined in International Financial Reporting Standards, cash is included in financial assets. Cash includes cash on hand and funds in the bank's own accounts. Currency (money) is a financial asset because it represents a means of universal exchangeability into goods and, thus, the basis on which all transactions are measured and reported in financial statements. A cash deposit at a bank is a financial asset because it represents the depositor's contractual right to receive money from that institution or write a check for the account balance.
So, an expanded interpretation of the concept of “financial asset”, taking into account the views of different economists, is that these are values that the bank owns and manages in order to ensure an influx of economic benefits that increase capital. Values mean economic resources or rights to these resources, recorded by the system of relations between subjects of economic relations and expressed in prices that characterize the relative price level compared to the prices of other financial assets. Optimal management of a company's assets, aimed at maximizing their value, is an important means of achieving the goal of capital maximization.
Financial assets are, first of all, a targeted investment of available financial resources in order to generate income. The focus on generating income is an absolutely necessary condition: the main goal of any bank in market conditions is to increase economic potential and increase capital.
Financial assets can be long-term oriented or speculative in nature. If speculative assets are aimed at the bank obtaining the desired result in a specific period of time, then long-term financial assets, as a rule, pursue strategic goals that are associated with participation in the management of the economic entity in which capital is invested.
A meaningful characteristic of understanding the conceptual difference between the category “financial asset” and other economic categories should include the possibility of exchange for another product of the financial market, while ensuring an increase in value over a certain period of time. Based on this, it seems logical to consider financial assets as short-term and long-term. Leading economist of OJSC Dalcombank, Khabarovsk A.V. Filimonov made an attempt to generalize and highlight the main criteria by which assets can be classified (Table 1).
There are different points of view regarding the classification of active operations, as well as the structure of assets of a commercial bank (Table 2).
Let us take a closer look at the main active operations of commercial banks.
Credit transactions. A bank loan is an economic relationship in which banks provide borrowers with funds with the condition of their return. These relationships involve the movement of value (loan capital) from the bank (lender) to the borrower (debtor) and back. Borrowers are legal entities - enterprises of all forms of ownership (joint stock enterprises and firms, state enterprises, private entrepreneurs, etc.), as well as individuals.
The return of the value received by the borrower (repayment of the debt to the bank) on the scale of one enterprise and the entire economy must be the result of reproduction in increasing sizes. This determines the economic role of credit and serves as one of the most important conditions for the bank to profit from lending operations. Debt on loans provided to the population can be repaid by reducing accumulation and even reducing consumption compared to the previous period.
Table 1 - Classification of assets of credit institutions of the Russian Federation according to various criteria
| Classification criterion | Types of assets, their characteristics and examples | Significance, features |
| 1 | 2 | 3 |
| 1. By timing of implementation | Short term:
a) assets that are expected to be used within one financial year. b) If the asset is not sold within, usually 12 months, but there is a clear intention to sell it. Example: cash (they have increased liquidity). Capable of instantly performing the function of a means of payment. |
High share of immobilized funds, the most “low-quality” component of banking assets, because it includes funds diverted by banks to non-profitable operations. The size of such assets is 20-30% of the total value of all assets. The presence of immobilized assets is an objective reality necessary for any bank to carry out its activities as a credit institution. |
| Long term: assets that are expected to be used for more than one financial year. Examples: fixed assets, intangible assets and inventories. |
||
| 2.According to the degree of control of the object | Controlled | |
| Often supervised | ||
| 3. By subjects in whose use the bank’s assets are located | Used by the bank itself | The structure of assets by entity shows which sectors of the economy the bank directs its resources to and to what extent its investments are diversified. The lower the degree of concentration of a bank's resources in one group, the more reliable it is considered. |
| Provided for temporary use to other entities | ||
| 4. Geographically |
Intra-country:
funds placed within the territorial borders of a given country. |
|
| Foreign:
investments of capital by non-resident individuals and legal entities in objects and financial instruments of another state. |
||
| 5. By placement period | unlimited | Currently, the structure of fixed-term assets of Russian banks is dominated by assets placed for a period of 91 to 180 days. |
| Placed for the period: poste restante; up to 30 days; from 31 to 90 days; from 91 to 180 days; from 181 to 360 days; from 1 year to 3 years; over 3 years | ||
| 6. By appointment | Cash assets Working (current) assets Investment assets Capitalized (non-current) assets Other assets |
Provide bank liquidity
Bring current income to the bank Designed to generate future income and achieve other strategic goals Designed to support the bank's business activities |
| 7. According to the degree of risk | Group 1: risk 0 (2)%:
Group 2: 10% risk: Group 3: 20% risk: Fourth risk group: 50% Fifth risk group: 100% |
This group has zero risk for almost all positions and does not participate in the calculation of the capital adequacy ratio. At the same time, the positions “cash currency”, “precious metals and stones in storage and in transit” are assessed by the Central Bank of the Russian Federation with a risk of 2%, although the probability of a bank losing the value of its cash is not much higher than other assets assessed with a risk of 0% .
The level of risk for the fourth group of assets (50%) has now been reduced by 20 percentage points (instead of 70% adopted after the 1998 crisis), but remains still quite high, which indicates that the Central Bank of the Russian Federation still has a low assessment of the state of the domestic interbank market and the Russian banking system as a whole. For comparison, funds placed in accounts in banks of one’s country and similar assets are set at 20% by the Basel Accords. |
| 8. By degree of liquidity | As the ability of assets to convert into cash decreases, they are divided into highly liquid, liquid, medium-term liquid assets, long-term liquid assets and illiquid assets. | It is believed that these assets, if necessary, can be immediately withdrawn from the bank’s circulation.
The development of the securities market in Russia makes it possible to classify short-term (up to 30 days) investments in trading securities purchased for resale and received under loan agreements as liquid assets. The above classification is purely analytical and is not regulated by any regulatory documents. Depending on the situation in the financial market and the banking services market or on changes in the quality of an asset, the latter may move to neighboring liquidity groups. |
| 9. By degree of profitability | Income-generating
Loans, investments Non-income generating Free reserves, tangible assets |
|
| 10. by type of bank loans:
a) by type of borrower
|
1.1. loans to commercial and industrial enterprises | to finance the costs of replenishing working and fixed capital. Some loans are seasonal in nature, i.e. used to finance seasonal changes in working capital needs. They can be used as a source of covering capital costs, with their subsequent conversion into long-term loans by placing shares or bonds on the market. |
| 1.2. loans secured by real estate, i.e. mortgage loans | Issued to construction companies as a form of interim financing during the construction cycle. This also includes loans to individuals for the purchase of real estate with a mortgage. Banks often sell these mortgages to government-controlled mortgage market financiers. Features:
-relatively low risk when issuing a loan, since it is secured by real estate; - have a long-term nature; - provide the bank with a stable clientele; -the bank has the opportunity to diversify its loan portfolio, since mortgages can, if necessary, be sold on the secondary securities market. |
|
| 1.3. agricultural loans | -provided to agricultural enterprises to finance seasonal expenses in crop and livestock production;
- have a relatively small size and are provided by the harvest. If the borrower does not have enough equity capital, then real estate and endorsements can be accepted as collateral. |
|
| 1.4. loans to non-bank financial institutions (this includes finance companies, investment banks, savings and loan associations, mortgage companies, credit unions, insurance companies) | -bank loans for these institutions are one of the main sources of funds, which they then direct to various types of loans, while extracting the corresponding profit from the difference in interest | |
| 1.5. loans to commercial banks | - act as an instrument for the redistribution of credit resources between banks within the framework of correspondent relations;
-loans are redistributed on the interbank credit market and are provided to make a profit from the difference in interest or to maintain current liquidity. |
|
| 1.6. loans to brokers and dealers, securities market participants | -issued for the purchase of securities on demand terms;
- banks must be informed that the borrowed funds will be used for production purposes or for the purchase of new shares. |
|
| 1.7. loans to foreign government agencies | -issued to cover the state budget deficit, settle the balance of payments and carry out large-scale investment programs. | |
| 1.8. loans to foreign banks | - designed to finance large investment programs. | |
| 1.9. loans to authorities | -provided in connection with the temporary need of authorities for funds in the period between tax revenues;
-Bank loans, along with revenues from the placement of debt obligations, are one of the significant financial sources of authorities. |
|
| 1.10. loans to individuals | -provided in the form of consumer credit and personal loans;
- a prerequisite for obtaining a loan for the borrower is his creditworthiness; -used to satisfy the need for borrowed funds of end consumers - individuals; -associated with increasing the standard of living of the population: they allow the consumption of goods and services before borrowers are able to pay for them. |
|
| b) by the number of creditors | -loans provided by one bank;
-syndicated (consortial) loans; -parallel loans |
-loans provided by one bank are the most common. However, in some cases there is a need, due to a number of objective reasons (for example, a large loan size, increased risk, etc.), to combine the efforts of several banks to issue a loan;
- parallel loans require the participation of at least two banks in their provision. Negotiations are carried out with each bank separately, and then, after agreeing on the terms of the loan. A general loan agreement with uniform conditions is concluded. |
| c) according to the terms of the loan | -cash; -acceptance |
-transferred to the borrower’s account;
-the bank agrees to accept the draft |
| d) by objects of loan issuance | - for covering it will be transferred to working capital;
- to cover the costs of fixed assets; - costs of foreign economic activity |
Table 2 - Comparative analysis of different views on the composition of active operations of a commercial bank in the Russian Federation
| Full name author | Composition of active operations |
| V.I. Bukato, Yu.I. Lvov, P.G. Antonov |
-credit operations, as a result of which the bank’s loan portfolio is formed;
-investment operations that create the basis for the formation of an investment portfolio; -cash and settlement operations, which are one of the main types of services provided by the bank to its clients; - other active operations related to the creation of appropriate infrastructure that ensures the successful implementation of all banking operations. |
| O.I. Lavrushin | -loan operations, as a rule, bringing banks the bulk of their income. On a macroeconomic scale, the significance of these operations is that through them banks transform temporarily inactive monetary funds into active ones, stimulating the processes of production, circulation and consumption;
-investment transactions, in the process of their implementation, the bank acts as an investor, investing resources in securities or acquiring rights to joint economic activities; -deposit operations, the purpose of which is to create current and long-term reserves of means of payment in accounts with the Central Bank (correspondent and reserve account) and other commercial banks; - other active operations, various in form, which bring significant income to banks abroad. These include: transactions with foreign currency and precious metals, trust, agency, and commodity transactions. |
| V.P. Polyakov, L.A. Moskovkina |
-bank investments;
-providing loans; -accounting (purchase) of commercial bills; -stock transactions |
At the same time, lending to the population ensures an increase in consumption, stimulates an increase in demand for goods (especially expensive, durable ones) and depends on the level of income of the population, which determines the possibility of banks making a profit from these operations.
Credit operations make up the largest share in the structure of banking assets.
A bank loan is associated with the accumulation of temporarily free funds in the economy and their provision on the terms of return to business entities. Within the framework of a bank loan, certain types of loans are developed. This depends on many features characterizing the purpose, collateral, terms, methods of provision and repayment, objects and subjects of lending. The types of bank loans should be understood as a certain classification used in the process of lending by banks to legal entities and individuals. There are many different classifications of bank loans, based on certain criteria. The significance of the classification of banking courts lies in the fact that the credit function of banks is the main economic function and the economic situation of both the banks themselves and the clients they serve largely depends on how well they implement their credit functions. Bank loans can be classified according to lending purposes, types of borrowers and area of operation. Below we will consider the main criteria that are typical for the classification of bank loans in world practice.
Investment operations. In the process of their implementation, the bank acts as an investor, investing resources in securities or acquiring rights to joint business activities.
Investment transactions also generate income for the bank through direct participation in the creation of profits. The economic purpose of investment operations is usually associated with long-term investment of funds directly into production.
A variety of investment operations of banks is investing in office buildings, equipment and paying rent. These investments are made at the expense of the bank’s own capital; their purpose is to provide conditions for banking activities. These investments do not generate income for the bank.
Cash transactions. The presence of cash assets in the required amount is the most important condition for ensuring the normal functioning of commercial banks that use cash for exchanging money. Returning deposits, meeting demand for loans and covering operating expenses, including wages to staff, payment for various materials and services. The cash reserve depends on: the size of the bank's current liabilities; deadlines for issuing money to clients; settlements with own personnel; business development named after Lack of sufficient funds can undermine the authority of the bank. Inflation affects cash holdings. It increases the risk of money depreciation, so it is necessary to put it into circulation as soon as possible and place it in income-generating assets. Due to inflation, more and more cash is needed. Cash transactions are operations related to the movement of cash, with the formation, placement and use of funds in various active accounts.
The importance of bank cash transactions is determined by the fact that the formation of cash in the economy, the ratio of funds between various assets, items, and the proportion between the mass of paper, credit bills and small change depend on them.
Other operations. Other active operations, varied in form, bring significant income to the bank abroad. Other active transactions include: transactions with foreign currency and precious metals, trust, agency, commodity, etc.
The economic content of these operations is different. In some cases (purchase and sale of foreign currency or precious metals) there is a change in the volume or structure of assets that can be used to satisfy the claims of the bank’s creditors; in others (trust transactions), the bank acts as a trustee in relation to the property transferred to it for management; thirdly (agency transactions) - the bank acts as an intermediary, performing settlement transactions on behalf of its clients.
What does bank asset management include? What is needed to effectively manage bank assets?
It is necessary to clearly know the classification of assets. Correct classification of assets makes it possible to assess the economic condition of the bank as a whole, as well as determine the properties of a particular financial asset in particular. Analysis of these properties allows us to establish cause-and-effect relationships between the functioning of these assets in the financial market, expressed in the form of principles such as minimizing risks and maximizing profits.
It is important to remember the relationship between assets and liabilities. When carrying out operations to place funds, bank management must maintain constant control over liabilities in terms of the timing of their attraction, the availability of free resources, the cost of borrowing, since otherwise this may lead to a decrease in income and profit, the emergence of liquidity risk and even losses.
Competent and continuous risk assessment is required when conducting active operations. The ability to take reasonable risks is one of the elements of the culture of entrepreneurship in general, and banking in particular. It is also necessary to understand that the modern banking market is unthinkable without risk. It would be extremely naive to look for options for carrying out banking operations that would completely eliminate risk and would guarantee a certain financial result in advance. Risk is present in any operation, only it can be of different scales and “mitigated” and compensated for in different ways.
When managing bank assets, regular and continuous analysis of the dynamics of the movement of assets of commercial banks is mandatory. Changes in asset quality indicators must be monitored. Therefore, it is necessary to consider indicators of the quality of asset management, their characteristics and regulatory significance.
Now we know what is included in the management of bank assets, then the search for an answer to the question is obvious: how will we manage the bank’s assets? What methods exist for effectively managing the quality of bank assets? Therefore, it is necessary to consider the information base and methods that are used in the methodology for analyzing the quality of asset management.
1.2 Methodology for analyzing the quality of bank asset management: information base, methods, quality indicators
The main source of information for analyzing the bank's active operations are various forms of the balance sheet - a published form, a turnover sheet, a balance sheet from financial statements prepared in accordance with IFRS. The main forms of reporting, frequency of preparation and regulatory documents regulating the procedure for its formation are given in Table 3.
These reporting forms contain detailed and fairly complete information about the bank’s borrowers (including the largest ones), the nature, conditions, condition of their loan debt, the average level of interest rates on loans issued, the portfolio of bills discounted by the bank, and the types of collateral for loans issued. It provides information on overdue debt and overdue interest, provides a classification of the loan portfolio by risk group, by industry and region, information on the estimated and actually formed reserve for possible losses on loans, as well as information on other active operations of the bank.
Consolidated reporting is a fairly new form of presenting information about the status of their claims and obligations, equity (net assets), financial results and financial risks on a consolidated basis.
Table 3 - List of main reporting forms provided by commercial banks to the Bank of Russia
| № | Name and number of the reporting form | Regulatory act in accordance with which reporting is compiled and submitted to the Bank of Russia |
| Monthly reporting | ||
| 1 | Turnover statement of bank accounts (form code No. 0409101) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 2 | Information on the quality of loans, loan and equivalent debt (form code No. 0409115) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 3 | Data on large loans (form code No. 0409118) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 4 | Information on assets and liabilities by terms of demand and repayment (form code No.
0409125)
|
Directive of the Central Bank of the Russian Federation No. 1376-U |
| 5 | Data on weighted average interest rates on loans provided by the bank (form code No. 0409128) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 6 | Data on weighted average interest rates on deposits and deposits attracted by the bank (form code No. 0409129) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 7 | Calculation of equity (capital) (form code No. 0409134) | Regulation of the Central Bank of the Russian Federation No. 215-P |
| 8 | Information on mandatory standards (form code No. 0409135) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 9 | Summary report on the amount of market risk (form code No. 0409153) | Regulation of the Central Bank of the Russian Federation No. 89-P |
| 10 | Information on reserves for possible losses (form code No. 0409155) | Regulation of the Central Bank of the Russian Federation No. 283-P |
| 11 | Information on bank investments (form code No. 0409156) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 12 | Report on the implementation of the plan of measures for the financial rehabilitation of the bank (form code No. 0409354) | Instruction of the Central Bank of the Russian Federation dated July 12, 2001 No. 84-I “On the procedure for implementing measures to prevent the insolvency (bankruptcy) of banks” |
| Quarterly reporting | ||
| 1 | Bank profit and loss report (form code No. 0409102) | |
| 2 | Data on weighted average interest rates on deposit and savings certificates and bonds issued by the bank (form code No. 0409130) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 3 | Directive of the Central Bank of the Russian Federation No. 1376-U | |
| 4 | Data on weighted average interest rates on bills discounted by the bank and on its own bills issued at the expense of targeted lending funds (form code No. 0409132) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 5 | Information on loans and debt on loans issued to borrowers in various regions, and the amount of attracted deposits (form code No. 0409302) | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 6 | Consolidated reporting | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 7 | Published bank reports | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 8 | Unconsolidated financial statements | Directive of the Central Bank of the Russian Federation No. 1363-U |
| 9 | Information provided by banks issuing securities (quarterly reports on securities) | In accordance with the legislation of the Russian Federation on the securities market, Instruction of the Central Bank of the Russian Federation dated July 22, 2004 No. 102-I “On the rules for the issuance and registration of securities by banks on the territory of the Russian Federation” |
| Annual reporting | ||
| 1 | Published consolidated financial statements | Directive of the Central Bank of the Russian Federation No. 1376-U |
| 2 | Consolidated financial statements | Directive of the Central Bank of the Russian Federation No. 1363-U |
The purpose of its compilation is to establish the nature of the impact on the financial condition of banks of their investments in the capital of other legal entities, operations and transactions with these legal entities, to identify opportunities to manage their activities, as well as to determine the total amount of risks and equity (net assets) of a banking or consolidated group .
Consolidation is not a simple arithmetic addition of balances on the corresponding balance sheet accounts and profit and loss statements of several banks included in a banking group, but a rather responsible procedure that is carried out using various methods. The Central Bank of the Russian Federation, in particular, invites banks to use any of three consolidation methods for these purposes: the full consolidation method, the proportional consolidation method and the equivalent value method (Table 4).
Table 4 - The essence of consolidation methods
| Full consolidation method | Proportional consolidation method | Equivalent cost method |
| It is the most versatile. Allows you to include data from all members of a banking (consolidated) group in consolidated reporting. The essence of the method: when summing up the assets and liabilities of the balance sheets of the parent organization and group members - banks - in order to prevent double counting, balances on mutual settlements of investments are excluded, and capital items are included in the reporting in proportion to the group's share of the participant's capital. When drawing up a consolidated income statement, all income and expenses of the parent organization and consolidated participants are summed up item by item, but the following are excluded accordingly: income and expenses from mutual transactions; dividends received by some participants from others; The amount of profit of each participant that does not belong to the group is determined (for small participants - based on the amount of retained profit (loss) of the participant and the share of participation in the capital of the participant that does not belong to the group). | Consolidated financial statements include the financial statements of participants that are managed by a limited number of participants. The essence of the method: assets and liabilities, income and expenses of the balance sheet and profit and loss statement of each participant are summarized similarly to the full consolidation method, but in an amount directly proportional to the share of participation of the balance sheet (consolidated) group in the capital of the participants, while the share of small participants is not determined . | It is used in cases where the group members are foreign banks or organizations, and for some reason it is quite difficult to combine their funds with the funds of domestic banks and the parent organization. The essence of the method is to replace the value of the shares (shares) of the consolidated participant, reflected in the balance sheets of the parent bank and (or) other participants, with the valuation of the banking group's share in the own funds (net assets) of the consolidated participant. The method is recommended to be used by the Bank of Russia for consolidating the reporting of dependent business entities that have different charts of accounts and specific reporting from banks. |
High-quality management of bank assets is a complex and multifaceted process. The main directions of its analysis are presented in Figure 1.
Figure 1 - Analysis of the quality of asset management of a commercial bank
The relationship between active and passive operations of a commercial bank is extremely complex. Therefore, a clear analysis of all areas of banking activity is necessary. So, if the analysis of liabilities is an analysis of the bank’s resources, then the analysis of assets is an analysis of the directions of use of these resources - for what purposes, in what volume, for how long and to whom they are provided. Using the balance sheet assets of a commercial bank, you can track the distribution of the bank's resources by type of operation. Strategies, theories and methods for managing assets, liabilities and liquidity represent the methodological basis for analyzing the financial condition of a commercial bank (Figure 2).
In world practice, several approaches to managing banking assets have emerged. With one management approach or another, bank management allocates resources differently among different groups of assets. Asset management refers to the ways and procedures for placing own and borrowed funds. In relation to commercial banks, this is the distribution of cash, investments, loans and other assets. Particular attention when placing funds is paid to investments in securities and lending operations, in particular the composition of portfolios of securities and outstanding loans.
Figure 2 - Methodological basis for managing assets, liabilities and liquidity of the bank
Asset management strategy: the amount and types of borrowed funds held by the bank depend mainly on the needs of the clientele, which forms the structure of its liabilities. The bank's liquidity management is carried out through prudent loan management and maintaining sufficient liquid funds.
Liability management strategy: Banks have to deal with a lack of resources as a result of a decrease in inflation rates, and, consequently, with an increase in interest rates, the emergence or tightening of interbank competition. Therefore, banks try to minimize the cost of acquiring funds and optimize the structure of their liabilities. When profitable deals appear or in order to maintain their liquidity, banks buy resources on the financial market.
Fund management strategy: consists of coordinated management of assets, liabilities and spreads simultaneously. The following are analyzed: the consistency of assets and liabilities according to the timing of their demand and repayment; the level of weighted average interest rates on attracted and placed credit resources and securities; movement of financial flows and reserves.
Fund pool method(otherwise it is called the method of pooling sources of funds or the “common pot” method).
Figure 3 - General fund method
This method has been used for many years in branches of the Central Bank of our country. Many banks widely use this method, especially during periods of excess funds. This method is based on the idea of combining all resources. The total funds are then distributed among those types of assets (loans, government securities, cash on hand, etc.) that are considered suitable. The main objective is the profitable placement of available funds, subject to maintaining a sufficient level of liquidity. For these purposes, the so-called primary reserves are first formed - cash, funds in accounts in the Federal Reserve Banks (Central Bank), funds in correspondent accounts in other commercial banks, payment documents in the collection process; for domestic banks - cash desk, correspondent accounts, funds in collection.
Second-stage reserves serve as a source of replenishment of primary reserves and consist mainly of a portfolio of the most liquid securities (in Russia, these are GKOs, OFZs, short-term deposits in other banks, investments in trading securities). From the use of second-stage reserves, the bank receives income (in Russia it is very low, and even that is mainly due to investments in securities intended for trading). The third stage of placing funds into assets is the formation of a loan portfolio, the main source of bank income in a developed market economy. And lastly, assets are placed in relatively long-term first-class securities, joint ventures, leasing, factoring to replenish reserves of the second stage, and then the first, as the maturity dates of the securities approach.
This method requires bank management to equally adhere to the principles of liquidity and profitability. Therefore, funds are placed in such types of active operations that most fully comply with these principles. The allocation of funds is carried out in accordance with certain priorities, what part of the funds available to the bank must be placed in first or second priority reserves, used for loans and the purchase of securities in order for it to generate income.
The general fund method is easy to use, but its main disadvantage is the lack of differences between the requirements for the level of liquidity for different types of assets, which leads to underutilization of the bank’s funds and, as a consequence, a decrease in its profit.
The general fund method is most effective under centralized economic management, when the entrepreneurial activities of enterprises and banks are carried out within the framework of state programs for the development of the national economy. The formation of resources and their placement in assets occurs as these programs are implemented and depends little on the results of the work of a given bank.
Appearance method of asset distribution or conversion of funds – associated with the desire to overcome some of the shortcomings of the first. The asset allocation model establishes that the amount of liquid funds required by a bank depends on the sources of funds.
This model involves the creation of several “profit centers” (or “liquidity centers”) within the bank itself, used to place funds raised by the bank from various sources. These structural divisions are often called “banks within a bank”, since the placement of funds by each of these centers is carried out independently of the placement of funds by other centers. In other words, in a bank there are, as it were, separate from each other: a bank of demand deposits, a bank of savings deposits, a bank of time deposits and a bank of fixed capital. Having established the belonging of funds to various centers in terms of their liquidity and profitability, the bank management determines the procedure for their placement by each center. The authorized capital should be used to create the bank's capital property, demand deposits - for fast-flowing assets, time and savings deposits - for medium-term and long-term loans, etc. (Figure 4). Demand deposits require the highest coverage by mandatory reserves and have the highest turnover rate, sometimes reaching 30 or even 50 turnover per year. Consequently, a significant part of the funds from the center of demand deposits will be directed to first-priority reserves (say, one percent more than established by the norm of required reserves), the remaining part of demand deposits will be placed mainly in secondary reserves by investing them in short-term government securities, and only relatively small amounts will be earmarked for lending, mainly in the form of short-term commercial loans.
The relevance of this method is due to the fact that it increases the responsibility of each division and bank management for the effectiveness of decisions made and the effectiveness of relevant operations. Using this method, it is possible to introduce flexible bonus systems for individual employees and bank departments for achieving high performance indicators. This method allows you to determine the share of profit for various types of active operations of banks. The higher the share of profit, the more relevant this type of operation is for the bank’s commercial activities. To make calculations correct, profits can be weighed by the relative weight of the corresponding assets. The work of banks is carried out in conditions of constant changes in the commodity and money markets. This requires flexible management of banks' active operations. The goal of such management is to achieve the required profit and profitability.
Figure 4 – Asset allocation method.
The common fund method and the asset allocation method have flaw: they rely on the average rather than the marginal level of liquidity. Only an analysis of the accounts of individual bank clients and a good knowledge of economic and financial conditions in the local market will allow the bank to determine the cash needs at the moment.
Within the framework of asset management strategy, there are the following theories of liquidity management: the theory of commercial loans, the theory of movement (transformation of assets), the theory of expected income.
The theory of commercial loans: the level of liquidity is sufficient if the bank places its funds only in short-term loans intended to support the production cycle of enterprises, and does not issue loans for the purchase of securities, real estate, and consumer goods to agricultural producers.
Theory of displacement (transformation of assets): Bank liquidity can be managed. By moving (selling) certain types of assets for cash if necessary. Such assets can be easily marketable securities of governments, federal, municipal bodies and departments. The problems that arise when implementing this theory in the practical activities of banks are as follows:
-the price of liquid funds sold may be insufficient to ensure the required level of liquidity of the bank;
- there may be losses in the bank’s future income, which it will incur due to “underutilization” of the assets being sold;
-liquidity of transformed assets is not an absolutely predictable value.
Expected Return Theory: Liquidity management is possible based on planning the receipt of funds from borrowers, which, in turn, depend on the income they receive. According to this theory, on the one hand, repayment of loans by clients in installments allows them to maintain their liquidity, on which the liquidity of the bank depends, and on the other hand, liquidity is determined by regular and easily planned payments of its clients towards their principal debt.
Maintaining the required level of liquidity through the bank’s purchase of borrowed funds is the basis of the theory of liquidity management in within the framework of the liability management strategy.
One of the ways to acquire (or purchase) liquidity is to use for these purposes federal reserve funds (a kind of interbank loans) - temporarily free balances of banks' funds kept in deposit accounts at federal reserve banks. The advantages of these funds are their relatively easy accessibility to banks, the absence of requirements for providing them with reserves and insurance instruments (since they are considered purchased funds, not deposits), and the absence of restrictions on the maximum loan size. Because the funds are held in reserve bank accounts, drafts drawn on these accounts are cleared immediately, unlike checks drawn on a commercial bank (which may take 1-2 days to receive funds). The main disadvantages include: the need for daily renewal of such a loan, and from the point of view of federal banks, its insecurity.
In order to reduce the risk associated with the purchase of borrowed liquid funds, as well as the cost of storing liquid assets, a combined liquidity management strategy is used through asset and liability management simultaneously. At the same time, one part of liquid funds is accumulated in the form of quickly marketable securities and deposits in banks, and the other is ensured by the conclusion of preliminary agreements on the opening of credit lines with correspondent banks or other suppliers of funds.
As part of this strategy, there are several methods for assessing a bank's liquidity needs.
Method of sources and use of funds is based on the fact that the bank's liquid funds increase when deposits increase and the volume of loans decreases; in the opposite situation, they decrease. If the magnitude of the sources and volume of liquid funds used differ from each other, a positive or negative liquidity gap arises.
The tasks of liquidity management managers are to forecast the receipt/issuance of volumes of deposits and loans and their expected dynamics and determine a possible deficit or surplus of liquid funds based on a variety of statistical techniques.
Means structure method determine the bank’s total estimated need for liquid funds by dividing borrowed sources into categories depending on the possibility of their depreciation and loss for the bank, establishing, based on the experience of managers, the necessary reserve of liquid funds for each borrowed source (as a percentage of its value, reduced by the amount of required reserves ) and their subsequent summation.
IN liquidity ratio method the main, most important liquidity ratios are used, and their values are compared with industry averages or with their level determined on the basis of the experience of bank managers. With this method of calculating the required amount of liquid funds, both the volume of “accumulated” liquidity (obtained during asset management) and the level of “purchased” liquidity (acquired during the management of the bank’s liabilities) are taken into account.
Now let's move on to considering the quality indicators of bank asset management, which are necessary to apply one or another of the considered methods (Table 5).
The methods, quality indicators and information base necessary to analyze the quality of bank asset management are considered. It was revealed that there are several theories and methods for managing bank assets. Each method under consideration has its own advantages and disadvantages, which to a certain extent depend on the economic situation in the country. Which method is preferable at a given time is a personal choice of each commercial bank. However, banks cannot manage liabilities and assets separately. Only joint management of assets and liabilities will give fruitful results and lead to the main goal of a commercial bank - making a profit.
In 2009, the stock crisis began. It is necessary to understand how the emerging crisis affected the quality of asset management: how the structure of banking assets changed, how it was necessary to adjust and possibly change the existing methodology for analyzing the quality of bank asset management, what changed in the issuance of loans, whether commercial banks were able to make a profit in the same volumes, what about before the crisis?
Table 5 – Indicators of the quality of asset management of credit institutions
| № | Asset management quality indicators | Economic content of the indicator | Method of calculating the indicator | Criterion level of the indicator | |
| 1 | 2 | 3 | 4 | 5 | |
| 1 | Bank's own funds (capital) adequacy ratio H 1 |
This standard characterizes the initial level of liquidity of the bank.
The economic content of standard N 1 consists in assessing the degree to which the bank's obligations are secured with its own capital. The higher the value of this standard, the higher the initial liquid stability of the bank, and vice versa |
Defined as the ratio of a bank's capital to its liabilities N 1= K/O |
1,20-1,05 | |
| 2 | Liquidity standards: are established in order to monitor the bank’s liquidity status, that is, its ability to ensure timely and complete fulfillment of its monetary and other obligations arising from transactions using financial instruments. They regulate (limit) the risks of a bank losing liquidity and are defined as the relationship between assets and liabilities, taking into account the timing, amounts and types of assets and liabilities and other factors | ||||
| 2.1 | Quick ratio or current ratio | Shows what share of obligations the bank can fulfill at any time | PL1 = Lam / PS, where: Lam is highly liquid assets,
PS-raised funds |
||
| 2.2 | Standard N 2 |
The growth dynamics of this standard indicate that the greater part of all deposits is directed to satisfy the needs for loans, i.e. the balance of loan debt of bank borrowers increases, the higher the value of the H2 standard. | H 2 = KR / C where: Kr-amount of debt on loans |
0,7-1,5 | |
| 2.3 | Standard N 3 |
Regulates (limites) the risk of the bank losing liquidity during the 30 calendar days closest to the date of calculation of the standard and determines the minimum ratio of the amount of the bank’s liquid assets to the amount of the bank’s liabilities on demand accounts and for a period of up to 30 calendar days
(shows what part of obligations up to 30 days can be paid within this period of time) |
N 3 = La / C La-liquid assets C - the sum of current, current accounts, deposits and deposits |
0,2-0,5 | |
| 2.4 | Standard H4 |
Gives an assessment of the specific weight of the liquid part of funds in the total amount of the bank’s assets, thereby assessing the degree of liquidity of the bank’s assets as a whole. Can be used as a comparable criterion in assessing the level of liquidity of various commercial banks. The greater the share of the bank's liquid assets. The higher the stability of its liquidity, and vice versa | H 4 = La /A, where: La-liquid assets,
A – total assets |
0,2-0,5 | |
| 2.5 | Total liquidity ratio Kol | Characterizes the ability of a credit institution to fulfill all its obligations at the expense of all assets | Quantity = all bank liabilities / all assets |
? 0,95 | |
| 3 | Standard for the maximum amount of risk per borrower or group of related borrowers N 6 |
Regulates (limites) the bank’s credit risk in relation to one borrower or group of related borrowers and determines the maximum ratio of the total amount of the bank’s credit claims to the borrower or group of related borrowers and the bank’s own funds (capital) | N 6 = (Krz / K) * 100%, where: Krz is the total amount of the bank’s credit claims to the borrower who has obligations to the bank on credit claims, or a group of related borrowers, minus the formed reserve for possible losses;
K – bank’s own capital |
25% | |
| 4 | Standard for the maximum size of large credit risks N 7 |
Regulates (limites) the total amount of large credit risks of the bank and determines the maximum ratio of the total amount of large risks and the amount of the bank’s own funds (capital) | N 7 = (sum Kskr i / K)*10%, where: Kskr i – large credit risk, minus the formed reserve for possible losses | 800% | |
| 5 | Standard for the maximum amount of loans, bank guarantees and guarantees provided by the bank to its participants (shareholders) N 9 |
Regulates (limites) the bank’s credit risk in relation to the bank’s participants (shareholders) and determines the maximum ratio of the size of loans, bank guarantees and guarantees provided by the bank to its participants (shareholders) to the bank’s own funds (capital) | Н 9 = (sum Kра i/ К)*100%, where
KRA i – the value of the i-th credit requirement |
50% | |
| 6 | Standard for the total amount of risk for bank insiders N 10 |
Regulates (limites) the bank’s total credit risk in relation to all insiders, which include individuals who can influence the decision to issue a loan to banks | N 10 = (sum Krsi / K)*100%, where Krsi is the value of the i-th credit claim to a bank insider | 3% | |
| 7 | Standard for using the bank's own capital funds to acquire shares (shares) of other legal entities N 12 |
Regulates (limites) the total risk of the bank's investments in shares (shares) of other legal entities and determines the maximum ratio of the amounts invested by the bank to purchase shares (shares) of other legal entities to the bank's own funds (capital) | N 12 = (sum Kin / K) * 100%, where Kin is the value of the i-th investment of the bank in shares (shares) of other legal entities minus the formed reserve for possible losses on these investments | 25% | |
| 8 | Return on active operations (DAO) | DAO = (amount of income for the period/average annual cost/0.75)*100% | |||
| 9 | Asset utilization ratio | To Effective Asset Use =
income-generating assets/total assets of the bank |
|||
1.3 Features of bank asset management during the financial crisis
Due to the emerging financial crisis, banks have significantly reduced their active operations in the securities market. Many banks' balance sheets have seen a reduction or even absence of net holdings of investment securities and available-for-sale securities. Many banks are significantly reducing the size of their securities portfolio.
Many banks have stopped issuing this type of loan to businessmen, such as a cash loan, leaving it only for individuals. It has become more difficult to obtain an express loan and a loan without collateral; in addition, interest rates on loans issued have increased significantly compared to “pre-crisis” times, which makes raising borrowed funds unprofitable.
To a large extent, this is due to the rise in price of financial resources from the banks themselves. Now interest rates on small loans directly depend on the sources from which the bank raises money for business, for example, whether they use deposit funds or borrow funds abroad.
An inevitable consequence of the financial crisis was a deterioration in the quality of bank assets. The number of problem loans has increased. Having received loans before the onset of the crisis, many Borrowers found themselves unable to make the payments due on time to repay the loan.
Therefore, now banks and other financial and credit organizations, when deciding on the provision of loans, are forced to take into account the possible risks of non-repayment, which leads to an increase in interest rates and tougher conditions for issuance. The credit history of the Borrowers is carefully analyzed; banks may require additional guarantees for loan repayment and impose increased requirements on guarantors.
As for Yakutsk, from October 2010 to April 2011, overdue loans doubled. St. Petersburg banks are suing borrowers who are unable to fulfill their mortgage obligations. If the Borrower finds himself in such a situation, the court may oblige him to sell the mortgaged apartment and use the proceeds to pay off the mortgage loan. Bank representatives advise not to let this happen:
- In this case, the sale price will be lower than the market price (by 15-20%), the proceeds may not be enough to fully repay the loan. And the process takes at least 2-3 months, or even six months. If the sale is carried out by the borrower himself. Then he will be able to sell at the price at which he agrees with the buyer. Part of the money will be used to repay the loan; with the remaining money you can buy housing of a smaller area or in a less prestigious area.
However, if previously an apartment could be put up for auction by agreement with the bank, now the sales process is fraught with a number of technological difficulties (see Figures 5 and 6 for what measures banks can offer).
On the other hand, it is easier to negotiate with a “mortgage” seller due to the urgency of the transaction. Thus, the buyer can save a little.
To be on the safe side, banks advise that the purchase and sale agreement be notarized. This document will help the buyer prove that he actually transferred the money.
As for asset management methods, the method of distributing funds is more consistent with the requirements of a market economy; this method can more flexibly adapt to the influence of the financial crisis than the “common pot” method.
During the financial crisis, the Federal Tax Service proposed making several changes to the Russian banking system. Among the proposals, the tax service considers absolutely necessary the unrestricted access of tax inspectors to all information on financial transactions and interbank settlements. “Most foreign tax administrations have access to information from national banking systems, not limited by bank secrecy,” Interfax quotes the position of the Federal Tax Service.
| - The borrower repays the loan.
- The bank is left without the Borrower, but with money (the loan debt has been repaid). - The buyer receives an apartment, albeit with some “nerves.” |
1. The borrower obtains permission from the bank to sell the apartment.
2. Finds a buyer. The buyer transfers to him the amount necessary to repay the loan debt. 3. A purchase and sale agreement is concluded between the seller (borrower) and the buyer. It states how much of the money is transferred from the seller to the borrower) before he receives ownership. 4. Using this amount, the Borrower settles with the bank. 5. The following documents are submitted for state registration: -on the transfer of ownership (submitted by the seller and the buyer); -on the removal of collateral (letter from the creditor bank) 6. After registering ownership, the buyer transfers the remaining amount to the seller. |
Figure 5 – Banks’ proposal to solve the problem of mortgage loan No. 1.
| - The borrower sells the apartment along with the encumbrance.
- The bank receives a new Borrower instead of the old one. - The buyer enters into a mortgage. |
The Borrower finds a buyer, whom the bank analyzes as its potential Borrower. If the response from the credit committee is positive, then the buyer enters into a loan agreement with the bank and purchases the mortgaged apartment from the Borrower along with the loan obligations. After this, documents for the transfer of ownership and an additional agreement to the mortgage are submitted to Rosregistration. Where the new mortgagor (new owner of the apartment) is indicated. |
Figure 6 – Banks’ proposal to solve the problem of mortgage loan No. 2
There is a positive side to the fact that employees of the Federal Tax Service, if they manage to push their proposals through the cabinet of ministers, will have full access to banking secrets. A new flow of information about bank accounts and transactions may pour into the black market, and then even the most naive bank client will not have the illusion that information about his financial situation is protected. After all, forewarned is forearmed. If borrowers do not want to risk information about their financial situation, then they need to live within their means, not take out loans, and not engage in dubious financial transactions. On the other hand, if fewer Borrowers apply to the bank, this will negatively affect the work of the lending department, because fewer loans issued means the bank’s profit decreases.
During the crisis, the Federal Tax Service also proposes to introduce a tax on financial transactions in the amount of 0.5 percent of the listed service. They also predict that loans will become more expensive, although many banks, during the crisis, are trying to reduce interest rates on loans in order to attract more Borrowers.
During the financial crisis, banks significantly reduced the issuance of consumer loans. The peak of consumer lending in Russia occurred in 2007-2009, when there was rapid economic growth and high oil prices.
Currently, the educational lending market is the least developed. Its main idea is to break the vicious circle: lack of necessary education - low earnings - lack of funds for education - lack of necessary education. Features of an educational loan: low interest rate (as close as possible to the refinancing rate) and a long loan repayment period (usually up to 10 years).
Today, these conditions are not provided, so banks are forced to inflate the cost of the loan. For the development of the educational lending market, the following is necessary: - a legislative framework for providing financial assistance to everyone who wants and is able to receive an education and a guarantee of loan repayment by the state, allowing it to take on a significant part of the risks.
The financial crisis certainly affected the work of commercial banks and, in particular, asset management. But in general, banks continue to operate efficiently. The financial crisis is forcing banks to reconsider their asset management methods and be more careful when checking borrowers. The financial crisis opens up new opportunities for banks in the field of asset management. In the process of such work, the bank can identify first-class standard assets that generate stable high income, and at the same time get rid of problem assets.
The first chapter examines the main theoretical aspects of bank asset management.
It is important to understand the difference between the concepts: “quality management”, “quality assets”, “asset quality”, “asset management” and “quality of asset management”.
Quality management- this is effective management that brings results that are of practical significance for the functioning of the bank. This is management that minimizes losses and losses, and leads to the main goal of a commercial bank - making a profit.
Quality assets- these are assets that provide adequate (interest) income even in the event of negative changes in macroeconomic conditions or changes in business conditions.
Asset quality- this is stability, stability, expediency of assets. The quality of assets is determined by the extent to which they contribute to achieving the main goal of a commercial bank, namely its profitable, stable operation.
Asset Management- this is the appropriate placement of own and borrowed funds in order to obtain the highest profitability and ensure the liquidity of a commercial bank.
The subject of asset management is the theory and practice of decision-making regarding the placement and use of funds.
Asset management includes general financial analysis and planning of assets, searching for answers to key questions: 1. “Are the placement and use of assets favorable and what measures help prevent their deterioration?” It is necessary to maintain the current situation at the proper level and try to improve the placement and use of assets. The second important question that needs to be answered when managing assets is: “Where, in what and to whom (mandatory verification of the reliability of partners!) invest financial resources with the greatest efficiency?”
Quality of asset management- this is management aimed at maintaining the stability, sustainability and appropriateness of assets.
The purpose of asset quality management is to identify important trends in the life of the bank and determine due to which operations profitability (unprofitability) has increased or decreased.
Based on quality, the assets of a commercial bank are divided into full-fledged and inferior. A non-performing asset is one that the bank cannot convert into cash at its current book value upon maturity. Defective assets include: overdue loan debt; bills and other debt obligations not paid on time; illiquid and depreciated securities; accounts receivable for a period exceeding 30 days; funds in correspondent accounts in bankrupt banks; investments in the capital of enterprises in crisis; unsaleable real estate, etc. .
The quality of asset management is the control and maintenance of compliance of the structure of assets with the structure of liabilities in terms of maturity, liquidity and profitability of assets, the volume and share of risky, critical and defective assets and the sign of asset variability.
The concept of “asset quality” combines such criteria as the degree of liquidity, profitability, diversification of assets and the degree of investment risk.
Asset quality assessed from the point of view of their repayment (for the loan portfolio) and the ability to turn into means of payment in a timely manner and without loss (for securities and fixed assets).
Based on the above, I will try to create a general definition of “quality of asset management”.
Quality of asset management- this is the appropriate placement of own and borrowed funds in such a way as to maintain the stability and sustainability of assets, which will ensure liquidity and profitable operation of a commercial bank.
The direction of development of the national banking system in line with international standards has become a truly strategic task of state development. Therefore, solving the problem of determining the quality and level of valuation of the assets of commercial banks through the development of methodological approaches based on the accumulated knowledge of international standards contributes to solving the most important task of increasing the financial stability and transparency of the entire banking system as a whole. Now that the main theoretical aspects of bank management have been considered, we can move on to the practical (calculation) part of the thesis. It is necessary to assess the quality of asset management of National Bank Trust OJSC. The analyzed period within this thesis will be three years, i.e. For the analysis, data for 2008-2010 will be used. Five types of analyzes will be carried out: analysis of the riskiness of assets, analysis of the return on assets, analysis of the liquidity of assets, analysis of portfolio management of investments of OJSC National Bank Trust in securities.
Also, it is necessary to assess the composition, structure and dynamics of the bank’s assets for the analyzed time period.
CHAPTER 2. ASSESSMENT OF THE QUALITY OF ASSET MANAGEMENT OF OJSC NATIONAL BANK TRUST FOR 2008-2010.
NATIONAL BANK TRUST was created on March 26, 1992. A year later, the Bank served many large enterprises and organizations of Yakutsk, and became a dealer servicing issues of State city short-term bonds of the Yakutsk administration.
In 1996, the Bank became a member of S.W.I.F.T. In the same year, the accounts of the customs offices of the North-West Customs Administration were transferred to the bank for servicing. Work with customs has become one of the important areas of the Bank’s activities for many years. In the same year, the Bank began servicing the accounts of the Yakutsk territorial road fund.
In 1997, the Bank received dealer status in the Russian Trading System, and also became an authorized bank of the Republic of Sakha Yakutia.
During the crisis in the financial markets in 1998, the Bank not only did not suffer financial losses, but also attracted new clients, becoming a reliable financial partner for them.
In 1999, the Bank became a strategic financial partner of Yakut power engineering enterprises - LMZ, ZTL, Elektrosila.
At the beginning of 2001, an agreement was signed between the Bank, the administration of Yakutsk, the Yakutskaya CHPP, OJSC AK Yakutskenergo and OJSC Yakutgazprom on the procedure for interaction to ensure sustainable financing of heat energy supplies for enterprises, organizations and the housing stock of Yakutsk.
In 2001, the Bank's shares owned by structures of the Interros group were purchased by a number of Yakut companies.
etc.............
When assessing asset and liability management, we will consider both the activities of the parent bank (in the main aspects) and its Office for the Gomel Region as the main object of study. For the analysis we use appendices A - B and data from the website of OJSC Bank Moscow-Minsk.
The composition, structure and dynamics of assets of the Office of OJSC Bank Moscow-Minsk in Gomel is presented in Table 2.32.
As the data in Table 2.3 shows, the largest share in the structure of assets as of January 1, 2014 is occupied by loans to customers - 89.3% (an increase of 4.3 percentage points). The funds in the required reserve fund also increased significantly (2.9 times and 1.9 percentage points), which reflects the growth of its own resource base. As a result, the share of profitable assets increased to 93.5%, and non-performing assets decreased to 6.5%.
Such changes are positive, but the branch has low diversification of active operations. At the same time, it should be taken into account that the branch performs only those operations that are entrusted to it by the bank’s management. For example, branches usually do not carry out complex transactions with securities (for example, underwriting).
Table 2.3 - Data on the composition, structure and dynamics of assets of OJSC Bank Moscow-Minsk Directorate for the Gomel Region for 2014
|
Indicators |
As of 01/01/2014 |
As of 01/01/2015 |
Deviation by |
||||
|
million rubles |
amount, million rubles |
million rubles |
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|
1. Cash |
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|
2. Precious metals |
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|
3. Funds in the Mandatory Reserve Fund |
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|
4. Hosted inter-branch resources |
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|
5. Loans to customers |
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|
6. Transactions with foreign currency |
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|
7. Fixed assets and intangible assets |
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|
8. Other assets |
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|
9. Total assets |
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|
9.1. income generating assets |
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|
9.2. non-performing assets |
From the data in Table 2.3 it follows that with assets growing in 2012 by 21,790 million rubles or 4.8%, loans to customers increased by 38,814 million rubles or 10.1%. As a result, the share of the loan portfolio in the structure of assets (Figure 2.4) increased from 85.0% at the beginning of 2012 to 89.3% at the end of the year.
Figure 2.4 - Change in the share of loans in the assets of OJSC Bank Moscow-Minsk Administration for the Gomel Region for 2014
Moreover, this growth was achieved due to a decrease in the share of other active operations (from 7.4% to 4.2%). Loans thus further determine the branch's major resource investments.
Table 2.4 - Composition, dynamics and structure of loans to clients of OJSC Bank Moscow-Minsk Administration for the Gomel Region for 2014
|
Indicators |
As of 01/01/2014 |
As of 01/01/2015 |
Deviation by |
Growth rate, % |
|||
|
million rubles |
million rubles |
amount, million rubles |
beat weight,% |
||||
|
1. Loans to legal entities total |
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|
1.1. short-term |
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|
1.2. long-term |
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|
1.3. leasing |
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|
2. Loans to individual entrepreneurs |
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|
2.1. short-term |
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|
3. Loans to individuals |
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|
4. Loans to customers total |
As follows from the data in Table 2.4, the object of the study lends mainly to business entities - with the share of loans to individual entrepreneurs tending to zero, the share of loans to individuals is 0.5%, and the size of such loans is not growing. Upon further consideration in lending, individual entrepreneurs may be classified as corporate clients.
In Table 2.5 we group the data on the dynamics and structure of the corporate loan portfolio according to various criteria.
Table 2.5 - Volume and structure of loans to legal entities of OJSC Bank Moscow-Minsk Administration for the Gomel Region for 2014
These signs are few - according to the itemized balance sheet, the department does not lend at preferential rates and has no overdue debt.
The data in Table 2.5 and Figure 2.5 show that there is a negative (for the economy) process of reducing the share of long-term loans in the loan portfolio to legal entities. This process is due to macroeconomic reasons.
Figure 2.5 - Change in the structure of the corporate loan portfolio by loan term of OJSC Bank Moscow-Minsk Administration for the Gomel Region for 2014
Since 2009, Belarus has experienced economic instability, which has affected foreign exchange and deposit and credit policies. Despite relative stability in 2010 and 2012, the deposit market reacted by reducing the average deposit term, which was reflected in credit policy and at the end of 2014, long-term loans accounted for only 59.5% of the loan portfolio. Macroeconomic changes also affected the structure of lending based on the currency of the loan. The data in Table 2.4 and Figure 2.5 show a steady process of growth in the share of foreign currency loans for the object of study.
At the end of 2014, 34% of such loans in the loan portfolio had already been issued. This indicates that the bank's management reduces, whenever possible, the currency risk of lending, shifting it to clients.
Figure 2.6 - Structure of the corporate loan portfolio by loan currency of OJSC Bank Moscow-Minsk Administration for the Gomel Region for 2014
From the bank’s internal data, we will reflect the structure of loans issued by industry of borrowers and graphically express this structure in Figure 2.7.
Figure 2.7 - Structure of the corporate loan portfolio based on the industry of the loan originator OJSC Bank Moscow-Minsk Administration for the Gomel Region for 2014
The data in the figure indicate a decrease in the share of lending to enterprises with a high production and circulation cycle (agriculture and industry) and an increase in the share of trade lending.
In Table 2.6 we evaluate trends in the formation of liabilities.
As the data in Table 2.6 shows, the largest share in the resources of the Office of the Gomel Region as of 01/01/2015 is occupied by attracted inter-branch resources - although their share has decreased in amount and in specific weight, it still exceeds half of the liabilities, while the size has increased significantly and the share of long-term inter-branch resources.
The positive aspect is the increase in the amount of customer funds and their share to 27% of liabilities, an increase in the share of long-term funds raised and a decrease in the share of expensive time deposits.
Table 2.6 - Data on the composition, structure and dynamics of resources of OJSC Bank Moscow-Minsk Directorate for the Gomel Region for 2014
|
Indicators |
As of 01/01/2014 |
As of 01/01/2015 |
Deviation by |
||||
|
million rubles |
amount, million rubles |
million rubles |
|||||
|
1. Attracted interbranch resources |
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|
1.1. long-term |
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|
2. Client funds |
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|
2.1. long-term |
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|
2.2. paid |
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|
3. Securities issued by the bank |
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|
4. Reserves for active operations |
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|
5. Reserves for risks and payments |
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|
6. Other obligations |
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|
7. Total obligations |
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|
8. Capital |
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|
9. Liabilities of everything |
|||||||
|
9.1. paid |
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|
9.2. long-term |
Attraction through the issuance of own securities is small, but there is a significant increase in the amount and share in liabilities of created reserves for active operations (by 81% in amount and by 5.8 percentage points in share) and own funds (by 7.3%, respectively). times and by 1.9 p.p.). As a result, the trends in changes in the structure of liabilities are positive - the share of paid liabilities decreased to 71%, and the share of long-term liabilities increased to 38%. However, the formation of customer funds primarily from expensive time deposits is a negative trend. This indicates that loan growth is outpacing the growth of corresponding credit resources.
Let's consider the composition, structure and dynamics of funds raised from clients of the Regional Office for 2014 based on the data presented in Table 2.7.
As the data in Table 2.6 shows, the largest share in the structure of raised funds of the Regional Department of OJSC Bank Moscow-Minsk in Gomel by type of client as of 01/01/2015 is occupied by raised funds of legal entities and individual entrepreneurs (52.7%), although for this item there is a decrease of 10.2 percentage points. banking management asset credit
The share of funds from individuals increased to 42.6% (by 6.5 percentage points), and the budget - to 4.7% (by 3.7 percentage points).
Table 2.7 - Data on the composition, structure and dynamics of attracted funds from clients of OJSC Bank Moscow-Minsk Directorate for the Gomel Region for 2014
|
Indicators |
As of 01/01/2014 |
As of 01/01/2015 |
Deviation by |
||||
|
million rubles |
amount, million rubles |
million rubles |
|||||
|
1. Funds of legal entities and individual entrepreneurs |
|||||||
|
1.1. in national currency |
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|
1.2. in foreign currency |
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|
2. Budget funds |
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|
3. Funds of individuals |
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|
3.2. in foreign currency |
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|
3.3. time and conditional deposits of the population |
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|
3.3.1. in national currency |
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|
3.3.2. in foreign currency |
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|
4. Total customer funds |
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|
4.1. in national currency |
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|
4.2. in foreign currency |
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|
4.3. attracted at high rates |
|||||||
|
4.4. at moderate rates |
More than half of the funds are in national currency (54%), but there is a high share (albeit decreased) of funds at moderate rates (current, card accounts and demand deposits).
Since the efficiency of lending can be assessed both by the level of risk, level of profitability and turnover of loans and by comparing the effectiveness of different types of loans.
The absence of overdue debt in 2014 allows us to draw a conclusion about the effectiveness of lending in terms of compliance with the lending procedure, monitoring and support of loans. At the same time, a final conclusion about the effectiveness of the lending procedure can be made only after assessing the reasons for creating significant reserves. However, considering that 85% of reserves fall on only one client (OJSC Turov Cannery), the overall lending procedure can be assessed highly.
An important role is also played by comparing the size and share of the created reserve for loans with what is necessary for creation. Reporting data indicates that such a reserve has been created in full, which also indicates the high quality of the loan portfolio from a risk point of view.
Table 2.8 evaluates loan turnover indicators.
Table 2.8 - Indicators of turnover of corporate loans of OJSC Bank Moscow-Minsk Administration for the Gomel Region for 2013 - 2014.
|
Indicators |
Rate of change (%) or deviation |
||
|
1. Balance of credit debt to corporate clients, million rubles: |
|||
|
1.1. at the beginning of the year |
|||
|
1.2. at the end of the year |
|||
|
1.3. average loan balance |
|||
|
2. Turnover of corporate loans, million rubles |
|||
|
2.1. on repayment |
|||
|
2.2. upon issuance |
|||
|
3. Loan turnover indicators: |
|||
|
3.1. loan turnover ratio (from 2.1/from 1.3) |
|||
|
3.2. average loan term, days (360/s 3.1) |
The data in Table 2.8 shows that the loan period in 2012 decreased by 60% (to 107 days), which reflects macroeconomic changes.
In Table 2.9, we evaluate the influence of factors (average loan debt and repayment turnover) on reducing the average loan period.
Table 2.9 - Calculation of the influence of factors on the change in the loan turnover ratio of OJSC Bank Moscow-Minsk Administration for the Gomel Region for 2014
The calculation data confirms that the main factor in the decrease in the loan period in 2014 is associated with the increase in the volume of repayment of corporate loans in conditions of high interest rates (due to this, the loan period decreased by 210 days), and due to the increase in the average loan debt, the loan period increased for 48 days
Thus, in 2014, the structure of assets changed significantly - the share of loans to customers increased to 89.3%. The reason for this is that even in crisis conditions, the state, through the state-owned Belagroprombank, provides guaranteed support to agricultural enterprises.
The object of the study lends mainly to business entities - the share of loans to individuals does not exceed 0.5%. The share of lending to individual entrepreneurs is also minimal. In the structure of the corporate loan portfolio, there is a negative (for the economy) process of reducing the share of long-term loans in the loan portfolio to legal entities, due to macroeconomic reasons. The same reasons determine the steady process of growth in the share of foreign currency loans for the object of study. This indicates that the bank's management reduces, whenever possible, the currency risk of lending, shifting it to clients.
The management does not have enough of its own credit resources and actively uses the inter-branch resources of the parent bank, which reduces the profitability of lending.
Transcript
1 UDC: 33, 338 Kochubey I.S., 4th year undergraduate student, Faculty of “Finance and Credit” Kuban State Agrarian University Russia, Krasnodar METHODS OF ASSET MANAGEMENT OF A COMMERCIAL BANK Abstract: This article discusses the theoretical aspects of methods of asset management of a commercial bank . The composition, quality and methods of asset management of a commercial bank are analyzed. Abstract: In this article, theoretical aspects of the methods of asset management of a commercial bank are considered. The composition, quality and methods of asset management of a commercial bank are analyzed. Key words: Bank assets, liquidity, commercial bank, management methods. Keywords: The bank's assets, liquidity, commercial bank, management methods. Active banking operations are the activities of placing borrowed and own funds of a banking institution in order to generate income, ensure its liquidity and create conditions for conducting other banking operations. The relevance of the research work is determined diversity and complexity of changes taking place in banking
2 system of Russia, the emergence of numerous innovations in the organization, forms of service and methods of managing banks, the need to develop a holistic concept for increasing the efficiency of their functioning. A feature of the functioning of the Russian banking system today is the deterioration of the financial condition of a number of Russian commercial banks and, as a consequence, an increase in the number of their bankruptcies. This, in turn, leads to a decrease in the confidence of business entities and the population in the banking system as a whole. To overcome these crisis phenomena, commercial banks are required to use the most effective methods of managing assets and liabilities. This also emphasizes the relevance of the chosen topic. The purpose of the research work is to analyze the composition, quality and methods of asset management of a commercial bank. Obtaining maximum income for a commercial bank can be achieved through the most efficient use of the monetary resources mobilized by it. Since all the activities of banks are aimed at making a profit in conditions of constant competition, the main task is to find an opportunity to generate additional income without exposing the bank to undue risk. A commercial bank must ensure the ability to meet the requirements of depositors, that is, provide liquidity. It is necessary to have funds sufficient to meet the loan needs, since the provision of loans is the main activity of the bank. Its inability to satisfy customer requests for loans will lead to the loss of profitable transactions and a decrease in profits. The conflict between liquidity and profitability of a bank can be considered the central problem that it solves when placing
3 funds. On the one hand, he feels pressure from shareholders interested in higher returns that can be generated by lending to borrowers. But on the other hand, the bank's management is well aware that such actions reduce the bank's liquidity. For most commercial banks, the demand for liquid funds (S) arises for 2 reasons: due to clients withdrawing money from their accounts and in connection with the receipt of applications for loans from clients. Another reason is the repayment of debt on bank loans that it could receive from other banks. To meet demand, the bank can attract: receipts of deposits from customers, funds in new accounts and deposits in existing accounts. Various sources of supply of liquid funds (P) and demand determine the net liquid position (N) of the bank: N = P - S When S>P, a shortage of liquid funds is expected, otherwise there is a surplus. The demand for a bank's liquid funds rarely equals its supply at any given time. The bank must constantly deal with either a shortage of liquid funds or a surplus. There is a dilemma between liquidity and bank profitability. Most of the bank's resources are intended to satisfy the demand for liquid funds, a smaller part to achieve the desired profitability of the bank. Most banks have a mismatch between the maturities of their assets and their main liabilities. Another problem is the sensitivity of banks to changes in interest rates. As they rise, some investors withdraw their funds in search of higher returns or, having taken out a loan, suspend applications for new loans. Changes in interest rates also affect market values
4 assets that may need to be sold. The liquidity requirement is a priority; failure to comply may undermine confidence in the bank. General approaches to solving bank liquidity problems: 1) ensuring liquidity through assets, that is, transformation of assets (liquidity management through asset management); 2) the use of mainly borrowed liquid funds to satisfy the demand for funds (liability management); 3) balanced liquidity management (assets and liabilities). The 1st approach is considered the oldest in meeting the bank's needs. In its purest form, this strategy requires the accumulation of liquid funds in the form of liquid assets and when the need for liquid funds arises, selective assets are sold until the demand for cash is satisfied. Asset management refers to the ways and procedures for placing own and borrowed funds in order to generate income and ensure the liquidity of a commercial bank. Liquid assets must have the following properties: have their own market (for their rapid transformation into money), fairly stable prices and be reversible. The asset transformation strategy is a rather expensive method, since first of all, the sale of assets means that the bank loses its future income that it could receive from them, and secondly, it leads to a deterioration in the balance sheet. The liability management strategy is the borrowing of quickly marketable funds in the amount necessary to cover the expected demand for liquid funds. This method is considered the most risky due to the availability of credit and the volatility of interest rates.
5 Liability management represents the bank's activities related to attracting financial resources from depositors and other creditors and determining the appropriate combination of sources of funds necessary to maintain liquidity. Commercial banks are developing and developing new forms and methods of attracting savings from private depositors. Banks are developing a “short money” market, which includes time deposits (from 14 days to 2 months). Futures deposits are practiced, in which funds deposited in rubles are converted into freely convertible currency. A balanced approach to liquidity management involves accumulating part of the expected demand for liquid funds in the form of quickly marketable securities and deposits in other banks, and providing other needs for liquid funds with preliminary agreements on opening loans in other banks. All bank resources (own and borrowed) form a common fund of funds, which is allocated to assets based on current priorities either from the standpoint of ensuring current liquidity or ensuring speculative profit (Fig. 1). The method is considered risky. In certain periods it can only be used by banks with
6 high financial stability. Figure 1. General method for distributing funds. Asset management using the general fund method The method of asset distribution or conservation of funds is widespread in banking practice. It is based on the circulation speed of various types of resource attraction. Management is carried out simultaneously by liabilities and assets by coordinating them in terms of timing and size (Fig. 2). The method leads to the creation of relatively separate centers of liquidity and profitability within the bank. When the bank is focused on more fully satisfying customer needs, both methods have disadvantages. The demand for loans and the supply of resources may not coincide. Focusing on the average level of liquidity, banks pay less attention to clients. Figure 2. Asset management using the method of asset distribution (conversion of funds) The method of scientific asset management, or economic-mathematical, is focused on maximizing profits when
7 compliance with liquidity standards and risk diversification. This method is considered the most effective. Scientific management of assets and liabilities is based on the so-called golden rules of banking. An indicator of the effectiveness of asset and liability management by any of the methods is the level of profitability on the bank’s active operations. After analyzing the above methods, the following conclusions were drawn. Asset management of a commercial bank should be aimed at placing resources in the most profitable assets that have the required level of liquidity and have a limited level of risk. At the same time, bank management should strive to maximize the current value of assets, as well as optimize financial results. Sources used: 1. Kulumbekova T. S., Kadohova S. A. Methods for managing the assets of a commercial bank // Questions of economics and management S. A. Kurilova, O. G. Kovalenko (2015). Theoretical foundations of asset management for commercial banks // CyberLeninka.ru. URL: (access date:).
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Asset and liability management methods
Commercial banks must distribute raised funds into various types of active operations.
In this case, banks can be guided by the following placement methods:
General fund method. The method under consideration is based on the idea of combining all resources. The total funds are then distributed among those types of assets (loans, government securities, cash on hand, etc.) that are considered suitable. In the general fund model, for a specific active transaction, it does not matter from what source the funds came as long as their placement contributes to the achievement of the bank's goals.
This method requires bank management to equally adhere to the principles of liquidity and profitability. Therefore, funds are placed in such types of active operations that most fully comply with these principles. At the same time, this method does not contain clear criteria for the distribution of funds among asset categories, does not provide a solution to the “liquidity-profitability” dilemma, and depends on the experience and intuition of bank management.
Method of distribution (conversion) of assets. Asset management under the pool of funds method places too much emphasis on liquidity and does not take into account the different liquidity requirements in relation to demand deposits, savings deposits, time deposits and fixed capital. According to many bankers, this shortcoming is the reason for the increasing decline in profit margins. Over time, time and savings deposits require less liquidity than demand deposits and grow at a higher rate. The asset allocation method, also known as the fund conversion method, overcomes the limitations of the pool of funds method.
The main advantage of the method under consideration is the reduction of the share of liquid assets and the investment of additional funds in loans and investments, which leads to an increase in the rate of profit. This model involves the creation of several “profit centers” (or “liquidity centers”) within the bank itself, since the placement of funds by each of these centers is carried out independently of the placement of funds by other centers.
However, this method also has disadvantages that reduce its effectiveness. The basis for identifying different “profit centers” is the circulation speed of various types of deposits, but there may not be a close connection between the circulation speed of deposits of a particular group and fluctuations in the total amount of deposits of this group.
Other disadvantages apply equally to both the pool of funds method and the asset distribution method. Both methods emphasize the liquidity of required reserves and the possible withdrawal of deposits, paying less attention to the need to satisfy customer requests for credit. Meanwhile, it is well known that as business activity grows, so do deposits and loans.
From the standpoint of interest rate risk management, the method of conversion or separation of sources of funds is cautious. At the same time, the passive side is still considered constant, and the avoidance of interest rate risk is ensured by more closely linking the timing of the placement of assets with the sources of their financing by timing, i.e. liabilities. When interest rates fluctuate rapidly, using the asset conversion method does not optimize profits.
Since banks are viewed as entities that buy funds and lend them based on the percentage difference between the interest rates for buying and selling funds, the term “spread management” is becoming more popular in banking practice.
In order to manage interest rate risk, the asset allocation method is most applicable in a stable external environment, since its successful use depends on three conditions.
Namely:
- - relatively small variation in interest rates;
- - the composition of liabilities is quite stable and easy to predict;
- - most of the funds raised consist of non-interest-bearing term deposits, i.e. balances on settlement and current accounts of enterprises, organizations and individuals.
If these three conditions were met simultaneously, bank managers could consider the liability side of the balance sheet to be a given value and give greater importance to the bank's assets. With the asset allocation method, an increase in liquidity is ensured by regulating the asset structure, and the bank's profitability level is maintained at a given level through spread management.
The disadvantages of using the asset allocation method became apparent as interest rates fluctuated more frequently, making asset values more susceptible to change. This situation led to loss of income from a decrease in the value of assets and the risk of unbalanced liquidity.
The theory of liability management, which develops and complements the liquidity management policy of commercial banks, is based on the following two statements. First, a commercial bank can solve the liquidity problem by attracting additional funds by purchasing them on the capital market. Second, a commercial bank can ensure its liquidity by resorting to extensive loans of funds from the Central Bank or from correspondent banks, as well as loans obtained on the Eurocurrency market.
In the 60s of the last century, sources of financing became less stable, the amount of available funds decreased with an increase in demand for loans. Under these conditions, bank managers began to save on cash balances, i.e. reduce them as much as possible, and in order to meet the growing demand for credit, banks turned to managing their liabilities, i.e. liabilities.
However, in the 1970s, due to rising inflation and declining production, banks began to pay increasing attention to managing both sides of the balance sheet.
The technique of joint regulation of assets and liabilities is called asset-liability management. (ALM) The essence of ALM is that it combines the separate management techniques (asset, liability and spread) that have been used for many decades into one coordinated process. Thus, the main task of the ALM is the coordinated management of the entire balance sheet of the bank, and not its individual parts.
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Introduction
Banking arose and developed on the basis of usurious capital. Individual government officials and wealthy merchants, having quite large amounts of money at their disposal, lent them out. The development of usurious capital marked the beginning of banking.
Our time has not reached sufficient information about when the first banks arose and what functions they performed. However, already in ancient times there were some institutions that performed certain functions of banks. There are indications in historical literature that such institutions functioned in Babylon, Ancient Greece, Egypt, and Rome. They performed various operations - from commission transactions for purchases and sales and making payments on behalf of clients to issuing loans and acting as a guarantor and trustee in various transactions.
A bank is a universal credit organization that carries out operations to attract funds from individuals and legal entities into deposits, place these funds on its own behalf and at its own expense on the terms of repayment, payment, urgency, as well as opening and maintaining bank accounts of individuals and legal entities .
Commercial banks form the backbone of the country's banking system. The normal functioning of all subjects of the national economy depends on the stable operation of the banking system. The collapse of individual banks can lead to the loss of funds and the ruin of enterprises, individuals, and other banks that have entrusted their money to these banks. In the future, the bankruptcy of individual banks may entail a whole series of bankruptcies of credit institutions that are closely connected with each other through the money market and provoke a massive withdrawal of funds from banks by the population. The result of such a scenario could be a deep crisis of the monetary system, which risks quickly developing into a crisis of the entire economic system of the country and causing serious social tension in society. That is why society should have a special interest in the stable functioning of the banking system.
The health of the economy depends decisively on the clear and competent activities of banks. Without a developed network of banks operating on a commercial basis, the desire to create a real and effective market mechanism remains only a wish.
The structure and quality of assets largely determine the liquidity and solvency of the bank, and, consequently, its reliability. Capital adequacy and the level of accepted credit risks depend on the quality of banking assets. The main financial indicator of the bank's activities - profit - depends on how efficiently the bank's resources are used. Experience from both global and domestic practice shows that underestimating management in banks leads to negative consequences in their activities.
The quality of a bank's assets affects all aspects of banking operations. If borrowers do not pay interest on their loans, the bank's net profit will be reduced. In turn, low income (net profit) can cause a lack of liquidity. When cash flow is insufficient, the bank must increase its liabilities in order to pay administrative costs and interest on its existing loans. Poor asset quality directly affects capital. If borrowers are expected to default on their principal payments, the bank's capital is reduced. Too many outstanding loans are the most common cause of bank failure.
The banking portfolio of assets and liabilities is a single whole used to achieve high profits and an acceptable level of risk. Joint asset-liability management provides a bank with a tool to protect deposits and loans from the effects of business cycle and seasonal fluctuations, and a means to build asset portfolios that support the bank's objectives. The essence of asset and liability management is to formulate tactics and implement measures that bring the structure of the balance sheet into line with its strategy.
The relevance of the topic of the thesis is determined by the variety and complexity of changes taking place in the Russian banking system, the emergence of numerous innovations in the organization, forms of service and methods of managing banks, and the need to develop a holistic concept for increasing the efficiency of their functioning.
A feature of the functioning of the Russian banking system today is the deterioration of the financial condition of a number of Russian commercial banks and, as a consequence, an increase in the number of their bankruptcies. This, in turn, leads to a decrease in the confidence of business entities and the population in the banking system as a whole. To overcome these crisis phenomena, commercial banks are required to use the most effective methods of managing assets and liabilities. This also emphasizes the relevance of the chosen topic.
The purpose of the thesis is to analyze the composition, quality and methods of asset management of a commercial bank.
The object of the study was OJSC Alfa-Bank
The subject of the study is the structure of assets and the organization of management of active operations in OJSC Alfa-Bank.
Based on the purpose of the work, the following tasks were set:
determine the essence of the assets of commercial banks;
identify basic asset management methods;
find out the composition and structure of assets of commercial banks;
characterize the composition and structure of the assets of the research object;
analyze the process of organizing asset management within the framework of the research object.
In 2014, the entire Russian banking system suffered a huge shock. The key rate increased. Interest rates on loans reached 50%. All these measures were used to avoid bankruptcy and collapse of the banking system.
The economic significance and relevance of this issue lies in the fact that the conduct of active operations determined the writing of the thesis, the purpose of which is to theoretically explore the essence and significance of active operations of commercial banks, as well as to analyze the practice of carrying out these operations.
When writing this work, scientific works and monographs of Russian economists and foreign experts in the field of banking, some textbooks and methodological developments, periodical materials, and statistical information were used.
1. ORGANIZATIONAL AND ECONOMIC CHARACTERISTICS OF THE LIMITED LIABILITY COMPANY "ALFA-BANK"
1.1 Characteristics of Alfa-Bank OJSC
Alfa-Bank was founded in 1990. Alfa-Bank is a universal bank that carries out all main types of banking operations on the financial services market, including servicing private and corporate clients, investment banking, trade finance and asset management.
Alfa-Bank is one of the largest banks in Russia in terms of assets and equity capital. According to the audited financial statements (IFRS) for 2006, the assets of the Alfa-Bank group, which includes Alfa-Bank OJSC, subsidiary banks and financial companies, amounted to 15.2 billion US dollars, the total capital was 1. 3 billion US dollars, loan portfolio less reserves - 9.5 billion US dollars. Net profit at the end of 2006 amounted to 190.3 million US dollars (at the end of 2005 - 180.6 million).
Alfa-Bank serves more than 45 thousand corporate clients and more than 2.4 million individuals. Lending is one of the most important products offered by the Bank to corporate clients. Alfa-Bank's lending activities include trade lending, working capital and capital investment lending, trade and project financing. Among the Bank's clients there are large enterprises, while the main borrowers are medium-sized enterprises. Alfa-Bank is diversifying its loan portfolio, consistently reducing its concentration.
The strategic direction of Alfa-Bank's activities is retail business. Today, more than 30 Alfa-Bank branches are open in Moscow. In 2004, the Bank entered the consumer lending market.
Alfa-Bank's investment business is developing successfully. The bank operates effectively in the capital markets, fixed income securities, foreign exchange and money markets, and in the field of dividend transactions. The Bank consistently maintains its position as one of the leading operators and market makers in the foreign market for sovereign Russian bonds and debt instruments of the Russian corporate sector.
Alfa-Bank has created an extensive branch network - the most important channel for distributing services and products. 229 branches and affiliates of the bank have been opened in Moscow, regions of Russia and abroad, including subsidiary banks in Kazakhstan and the Netherlands and a financial subsidiary in the USA.
Alfa-Bank is one of the few Russian banks that has undergone international audits since 1993.
In 2005, Alfa-Bank introduced a new management system in its regional divisions: three blocks were formed in the branches - the Corporate Business Directorate, the Retail Business Directorate and the Administrative Directorate, the functions of which include solving administrative issues and servicing business.
Each block is headed by a separate manager, who is responsible for his area, implements his own business plan and is directly subordinate to the profile structure in the bank’s central office in Moscow. The Chairman of the Branch Credit Committee is the Administrative Director, who also has the right of veto.
Alfa-Bank's key objective is to achieve high international standards in corporate governance and business ethics. The Bank's management processes and procedures are structured to ensure compliance with all laws, rules and regulations, and to create optimal conditions for making forward-looking and responsible decisions. In the near and medium term, our priorities are to introduce independent members to the Board of Directors, increase the level of corporate governance efficiency through the creation of Committees under the Board of Directors in addition to the existing Audit Committee, obtain a corporate governance rating from an international rating agency and further ensure the transparency of Alfa-Bank's business .
Along with increasing the level of corporate governance, the Bank plays a vital role in the development of corporate culture. It is the corporate culture, set by management and maintained at the proper level by all Bank employees, that determines corporate ethics. Strict adherence to ethical standards and adherence to core values serve to form and preserve the corporate culture at Alfa-Bank.
Alfa-Bank's main competitors are banks such as Citibank, VTB 24, Sberbank, Raiffeisen, HomeBank.
1.2 Analysis of the financial condition of OJSC Alfa-Bank
The main source of funds with which the bank operates is the money it raises from enterprises, organizations and the population - the bank's liabilities. Depending on the conditions under which the bank attracts funds from organizations and citizens, the bank’s liabilities can be divided into deposit and non-deposit, demand and urgent, etc.
This head displays the state of financial resources and equity capital, based on the balance sheet and profit and loss statement of the bank's annual report and information on the state of the bank's internal control system and risk management system contained in the bank's latest annual financial statements, compiled in accordance with international standards. financial reporting standards and submitted to the National Bank in the manner determined by the regulatory legal acts of the National Bank regulating the procedure for the preparation and presentation by banks of financial statements drawn up in accordance with international financial reporting standards.
Various aspects of the production, sales, supply and financial activities of the organization receive a complete monetary assessment in the system of financial performance indicators. These indicators are summarized in the income statement and balance sheet.
The analysis of the financial position and performance efficiency of OJSC "ALFA-BANK" presented in this report was carried out for the period 12/31/2012 - 12/31/2014 based on the organization's financial statements for 3 years (Table 1.1).
Table 1.1 Balance sheet of OJSC Alfa-Bank for the period 12/31/2012 - 12/31/2014 (Unit of measurement: thousand rubles)
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Article title |
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Cash |
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Precious metals and stones |
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Funds in the National Bank |
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Funds in banks |
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Securities |
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Loans to clients |
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Production financial assets |
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Long-term financial assets |
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Fixed assets and intangible assets |
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Property held for sale |
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Other assets |
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TOTAL ASSETS |
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National Bank funds |
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Bank funds |
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Client funds |
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Securities issued by the bank |
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Production financial obligations |
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Other obligations |
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Total liabilities |
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Authorized fund |
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Share premium |
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Reserve fund |
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Fund for revaluation of balance sheet items |
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Accumulated profit |
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Total capital |
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TOTAL LIABILITIES |
Table 1.2 Report on financial results of Alfa-Bank OJSC for the period 12/31/2012 - 12/31/2014 (Unit of measurement: thousand rubles)
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Article title |
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Interest income |
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Interest expenses |
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Net interest income |
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Commission income |
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Commission expenses |
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Net commission income |
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Net income from operations with precious metals and stones |
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Net income from transactions with securities |
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Net income from foreign currency transactions |
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Net income from operations with industrial financial instruments207 |
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Net transfers to reserves |
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Other income |
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Operating expenses |
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Other expenses |
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Profit (loss) before tax |
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Income tax |
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Profit (LOSS) |
OJSC Alfa-Bank maintains accounting records in the currency of the Russian Federation and carries out accounting records in accordance with the requirements of the banking legislation of the Russian Federation. Other subsidiaries maintain their accounting records in accordance with the accounting rules and requirements of applicable company laws of the country in which they are located. These consolidated financial statements have been prepared on the basis of these financial statements and have been adjusted accordingly to conform in all material respects to IFRS.
The Group's assets and liabilities are presented in the consolidated financial statements in order of liquidity. This presentation is more relevant, more informative and more meaningful than presenting assets and liabilities by long-term or short-term basis. Long-term assets and liabilities with a maturity period of more than a year are considered.
The consolidated financial statements are presented in the national currency of the Russian Federation, i.e. in Russian rubles.
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) under the historical cost convention, as adjusted for revaluations of property, plant and equipment, available-for-sale financial assets and financial instruments at fair value in the account. profits and losses. The accounting policies used in the preparation of these consolidated financial statements are set out below. These principles have been applied consistently to all periods presented unless otherwise stated.
Table 1.3 Consolidated statement of financial position as of December 2014
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(in thousands of rubles) |
Deviation in %. |
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Cash and cash equivalents |
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Required reserves in central bank accounts |
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Trading securities |
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Trading securities. transferred without derecognition |
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Funds in other banks |
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Loans and advances to clients |
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Investments |
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Current income tax requirements |
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Deferred tax asset |
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Total assets |
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Liabilities |
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Funds from other banks |
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Client funds |
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Debt securities issued |
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Syndicated and other loans |
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Subordinated loans |
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Other financial liabilities |
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11other obligations |
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Current income tax liabilities |
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Deferred tax liability |
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Total liabilities |
Table 1.4 Own capital as of December 2014
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(in thousands of rubles) |
Deviation in % |
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Authorized capital |
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Share premium |
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Revaluation reserve at fair value of financial assets available for: |
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Fund for revaluation of fixed assets |
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Fund of accumulated exchange rate differences |
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Distributed Profits/(Accumulated Deficit) |
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Pure actins owned by owners: |
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Non-controlling interest |
Table 1.5
Consolidated statement of comprehensive income for 2014
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(in thousands of rubles) |
Deviation in % |
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Interest income |
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Interest expenses |
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Costs directly related to insurance |
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Net interest income |
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Other components of comprehensive income for the year |
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Total total income for the year |
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Provision for impairment of loan portfolio |
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Net interest income after provision for |
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loan portfolio impairment |
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Commission income |
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Commission expenses |
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Income less expenses from trading operations |
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securities |
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Income less expenses from investment transactions |
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Income less expenses from transactions with foreign |
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currency and precious metals |
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Other reserves |
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Other operating income |
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Operating income Operating expenses |
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Operating profit Financial result from the sale of subsidiaries Shares in the profits of an associated company |
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Profit/(loss) before tax Income tax expenses |
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Profit/(loss) |
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Other components of comprehensive income Investments available for sale Gains less expenses from revaluation of financial instruments available for sale Reclassification adjustments for expenses included in profit or loss Foreign Exchange Difference Fund Impact of financial restatement reporting in foreign currency. |
The Group's capital management has the following main objectives:
1. compliance with the capital requirements established by the relevant central bank requirements;
2. ensuring the Group's ability to operate as a going concern.
The capital adequacy ratio is monitored daily for compliance with requirements established by the Central Bank of the Russian Federation and monthly for other capital management purposes. Control over compliance with the capital adequacy standard established by the Central Bank of the Russian Federation is carried out using monthly reports containing relevant calculations, which are checked and endorsed by the Chairman of the Board and the Chief Accountant of the Bank. In accordance with existing capital requirements set by the Bank of Russia, banks must maintain the ratio of capital to risk-weighted assets above the mandatory minimum level.
The Group's capital management policy is aimed at maintaining a capital base sufficient to maintain the confidence of investors, creditors, other market participants and to ensure the future development of the Group. The Central Bank of the Russian Federation establishes and controls capital adequacy limits in relation to OJSC ALFA-BANK. Capital adequacy limits of Amsterdam Trade Bank N.V. and OJSC SB Alfa-Bank (Kazakhstan) are established and controlled by the Central Bank of the Netherlands and the National Bank of the Republic of Kazakhstan, respectively.
The Group plans its capital needs in such a way as to comply with the requirements of the Central Bank, for this purpose medium- and long-term planning of asset growth is carried out, taking into account capital adequacy. If necessary, the Group develops and implements measures to increase the capital base.
To ensure compliance with capital adequacy ratios in the short term, the Group monitors the use of capital by business segment. Responsibility for approval procedures and control over the use of capital lies with the Group's Financial Planning and Analysis Department.
The table below presents regulatory capital based on the Group's reports prepared in accordance with the requirements of Russian legislation in 2014 compared to 2013:
Table 1.6 Regulatory capital (in thousand rubles)
Based on the tables above, you can make a forecast about the bank’s financial resources. Let's calculate the growth rate and the rate of increase in equity and borrowed capital using the basic method, and based on the data obtained, make calculations for 2014. For accurate calculations and forecasts, we take a period of 3 years, the base year being 2012. Let's create a table and calculate:
Table 1.7
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Own capital in million rubles |
Growth rate in % |
Growth rate in % |
Borrowed capital in million rubles |
Growth rate in % |
Growth rate in % |
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Thus, based on the data in the table, we can say that the total volume of financial resources as of 10/01/2015 will average 7,193,629.9 of which 856,249.4 million rubles. this is equity capital and 6,337,380.5 million rubles. this is borrowed capital. And in 2015 the bank will increase the volume of loans issued and the volume of profits.
Now let’s calculate a number of coefficient values as of 12/31/2014 and compare them with the basic values for 12/31/2012: the financial stability coefficient and the ratio of equity and borrowed funds.
The financial stability coefficient shows the share of equity capital in the total amount of financing sources; it must be greater than 0.5. It is calculated by the formula:
Equity / Balance sheet currency (1)
As of 12/31/2012 Financial Statute = 152,289.8 / 2,881,566.5 = 0.05 0.5
As of 12/31/2014 Financial Statute = 680,271.7 / 5,774,989.2 = 0.11 0.5
The debt-to-equity ratio shows how much borrowed funds the organization has attracted per 1 ruble of equity capital invested in assets; it must be less than 1. It is calculated using the formula:
Borrowed funds / Own funds (2)
As of 12/31/2012 Kszs = 2,729,276.7 / 152,289.8 = 17.92 1
As of 12/31/2014 Kszs = 5,094,717.5 / 680,271.7 = 7.48 1
This coefficient does not meet the standards, but is going down. The excess of borrowed funds over own funds does not limit the activities of the organization. However, the organization needs to increase its own funds.
The absolute liquidity ratio shows what part of the current short-term debt the organization can repay in the near future using cash and equivalent financial investments. For a coefficient, a normal value is greater than or equal to 0.2. Calculated using the formula:
(Cash + Short-term Financial Investments) / Current Liabilities (3)
For a coefficient, a normal value is greater than or equal to 0.2.
As of 12/31/2012 Cal = (65,523 + 0) / 893,925.4 = 0.073 0.2
As of 12/31/2014 Cal = (229,852.3 + 0) / 3,405,604.7 = 0.067 0.2
The critical liquidity ratio shows what part of the organization's short-term liabilities can be immediately repaid using cash, funds in short-term securities, and settlement proceeds.
For the coefficient, the normal value is from 0.7 to 1; if it is more than 1, this means that the organization is the most attractive. Calculated using the formula:
(Cash + Cash Receivables + Accounts Receivable) / Current Liabilities (4)
As of 12/31/2012 Kkl = (65,523 + 0 + 1,944,141.5) / 893,925.4 = 2.248
As of 12/31/2014 Kkl = (229,852.3 + 0 + 3,663,616.3) / 3,405,604.7 = 1.143
The current liquidity ratio shows what part of current obligations on loans and settlements can be repaid by mobilizing all the working capital of the enterprise. For an organization, the recommended value is 1 or more. Calculated using the formula:
Current assets total / Current liabilities total (5)
As of 12/31/2012 Ktl = 2,729,276.7 / 2,881,566.5 = 0.947
As of 12/31/2014 Ktl = 5,094,717.5 / 5,774,989.2 = 0.882
Based on the calculated liquidity indicators, we will construct a graph and draw conclusions.
Rice. 1.1 Change in liquidity
Based on the degree of liquidity of an organization, we can say that short-term obligations can be immediately repaid in cash by organizations or partially.
We will evaluate the financial results of the organization. It is characterized by the profit received and the level of profitability.
Profit is the positive difference between income (revenue from the sale of goods and services) and the costs of production or acquisition and sale of these goods and services. Profit is calculated as revenue minus costs (in monetary terms).
The main objectives of analyzing the financial results of an enterprise are:
1. Monitoring the implementation of product sales plans and profit generation;
2. Determination of the influence of both objective and subjective factors on the volume of product sales and financial results;
3. Identification of reserves for increasing the volume of product sales and the amount of profit.
Let's calculate the change in profit and profitability based on the organization's financial performance report for the period from 12/31/2012 to 12/31/2014.
Net profit since 2012 has increased by 19,304.2 thousand rubles. (by 49.97%).
The return on sales indicator is calculated using the formula:
Net profit / Revenue (6)
As of 12/31/2014 Return on sales = 57,934.3 / 300,164.5 = 0.193
As of 12/31/2012 Return on sales = 38,630.1 / 130,921.8 = 0.295
Net Income/Equity (7)
As of 12/31/2014 Profitability capital = 57,934.3 / 680,271.7 = 0.085
As of 12/31/2012 Profitability of own. capital = 38,630.1 / 152,289.8 = 0.253
We calculate the return on assets indicator using the formula:
Net profit / Total assets (8)
As of 12/31/2014 Return on assets = 57,934.3 / 5,774,989.2 = 0.012
As of 12/31/2012 Return on assets = 38,630.1 / 2,881,566.5 = 0.013
Now let's build a diagram and draw conclusions.
Rice. 1.2 Change in profitability
Return on sales for 2014 shows that 1 ruble of revenue accounted for 0.193 kopecks of net profit. Return on equity shows that for every 1 ruble of equity capital comes 0.085 rubles to net profit. This figure increased by 21%. Return on assets shows 0.012 kopecks of net profit for every ruble of investment in assets.
asset bank liquidity balance
2. Theoretically, the basics of asset management for a commercial bank
2.1 Essence and significance of active KB operations
Bank assets are operations for placing the bank's own and borrowed funds to make a profit. Liquidity, profitability, and, consequently, the financial reliability and stability of the bank as a whole depend on the quality implementation of the bank’s active operations. The main sources of funds for the formation of assets are: the bank's own capital and depositors' funds, interbank loans, and the issue of bank bonds. The increase in the bank's assets occurs due to active operations: lending, investment operations, and other bank operations to place its own and borrowed funds. An important quality of a bank's assets is generating profit.
There are different points of view on the composition of the assets of a commercial bank. Conventionally, all assets of a commercial bank can be divided into 4 main groups (Figure 2.1).
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Rice. 2.1 Assets of commercial banks
Cash represents cash balances at the bank and balances on correspondent accounts with the Central Bank, as well as other commercial banks. Maintaining a sufficient level of cash balance in the form of banknotes and coins is necessary to ensure that the bank fulfills current obligations and payments in cash, mainly for settlements with individuals (changing money, returning deposits, issuing loans in cash). It is formed through the collection of proceeds from trade operations, accepted by the bank in cash. As a rule, banks set strict restrictions on the size of the cash balance and strive to reasonably minimize it, since the cash balance not only does not generate income, but also requires significant expenses (storage, recounting, and security measures). Excess cash balance is reduced by transferring part of the cash to the Central Bank for subsequent crediting of the transferred amount to the correspondent account of a commercial bank. If there is a lack of cash, a commercial bank can receive the required amount from the Central Bank.
Balances on correspondent accounts with the Central Bank and commercial banks are formed by receipts from the bank's counterparties and also serve to make current payments. Like the cash balance, the balance on the correspondent account is subject to reasonable minimization as not generating income or generating minimal income if interest is paid on the balance on it.
At the same time, these funds form the so-called primary reserves, which at any time, without any restrictions or additional costs, can be used to fulfill the bank’s obligations.
Investment securities. This includes bonds, bills, shares and other securities held by the bank, primarily with the expectation of income, the amount of which will depend on its rate. They are often divided into taxable securities and tax-exempt securities. The latter provide interest income that is exempt from income tax. Investments in investment securities may be reflected in the bank's financial statements at their original cost, market value, or at a value below par or market value. Almost all banks record purchased securities and other assets and liabilities with an indication of their original cost, unless regulatory authorities have established a mandatory procedure for their revaluation. Naturally, if interest rates increase after the purchase of securities, their market value will be lower than the original (book) value. Therefore, banks that list securities at their original cost often indicate their current market value. In Russian practice, investment securities usually include federal government bonds with a variable coupon and constant income (OFZ-PK and OFZ-PD), domestic government foreign currency loan bonds (OVGVZ), bills issued by the Ministry of Finance of the Russian Federation, municipal and regional securities , bills of banks and corporate issuers, as well as shares of joint stock companies.
Loans. The main type of bank assets are loans, which usually account for half to three-quarters of the total value of all assets. Gross loans include all loans originated (consumer, real estate, commercial and other enterprises) plus all extended loans made to securities dealers and other financial institutions. To determine the value of net loans, current and expected loan losses should be subtracted from the gross loans.
Fixed assets and intangible assets. Bank assets also include the residual value (adjusted for depreciation) of buildings and equipment, investments in subsidiaries and other relatively minor positions. The cost of tangible assets is also called fixed assets. They are also associated with fixed operating costs in the form of depreciation and property taxes. These costs serve as a lever for the bank, which allows it to increase operating income, however, if it is able to increase its sales volume to a sufficiently high level and earn more from the use of fixed assets than they themselves cost.
The activities of a commercial bank occur through the implementation of active and passive operations. Passive operations are carried out with the aim of generating resources for a commercial bank to carry out its activities. Active operations include operations to allocate resources available to banks to generate profit and ensure liquidity. Profit and liquidity are two fundamental principles that reflect the essence of active operations inherent in a bank as a commercial enterprise that uses mainly attracted resources.
There are different points of view regarding the classification of active operations, as well as the structure of assets. According to Bukato V.I., Lvov Yu.I. The main active operations are:
credit operations, as a result of which the bank’s loan portfolio is formed;
investment operations that create the basis for the formation of an investment portfolio;
cash and settlement operations, which are one of the main types of services provided by the bank to its clients;
other active operations related to the creation of appropriate infrastructure to ensure the successful execution of all banking operations.
Lavrushin believes that the most common active operations of banks are:
lending operations, as a rule, bring banks the bulk of their income. On a macroeconomic scale, the significance of these operations is that through them banks transform temporarily inactive monetary funds into active ones, stimulating the processes of production, circulation and consumption;
investment transactions, in the process of their implementation, the bank acts as an investor, investing resources in securities or acquiring rights to joint economic activities;
deposit operations, the purpose of active deposit operations of banks is to create current and long-term reserves of means of payment in accounts with the Central Bank (correspondent account and reserve account) and other commercial banks;
other active operations, varied in form, bring significant income to banks abroad. Other active operations include: operations with foreign currency and precious metals, trust, agency, commodity, etc.
Antonov P.G., Pessel M. highlight the same operations as Bukato V.I. and Lvov Y.I., i.e.: cash, credit, investment and other operations.
Based on the above, we can conclude that the main active operations of commercial banks are:
credit transactions;
investment operations;
cash transactions;
other active operations.
The need to manage the asset structure of a commercial bank is determined by the fact that the bank must ensure such a rational structure of its assets that would allow it to meet its obligations on a daily basis. To do this, the bank must effectively manage the composition and structure of its assets, i.e. make decisions on the most appropriate directions and methods of investing own and borrowed funds.
Active operations ensure the profitability and liquidity of the bank, i.e. allow you to solve two main goals of the activities of commercial banks. Active operations are also of great economic importance. It is with their help that banks can direct the funds released in the process of economic activity to those participants in economic turnover who need capital, ensuring the flow of capital into the most promising sectors of the economy, promoting the growth of industrial investments, the introduction of innovations, restructuring and stable growth of industrial production, expansion housing construction. Bank loans to the population are of great social importance.
2.2 Types of active CB operations
As follows from the previous section, active operations include the following types of operations: credit, investment, cash settlement and other operations. Let us consider these types of active operations of commercial banks in more detail.
2.2.1 Credit transactions
In accordance with Russian legislation, the following types of credit operations of commercial banks can be distinguished:
issuing various types of loans;
acquisition (accounting) of bills of exchange by banks;
issuance of bank guarantees;
financing operations against the assignment of a monetary claim (factoring).
Issuance of various types of loans.
In market economic conditions, the main form of credit is a bank loan, i.e. credit provided by commercial banks of different types and types. The subjects of credit relations in the field of bank credit are economic bodies, the population, the state and the banks themselves. As is known, in a credit transaction the subjects of credit relations always act as lenders and borrowers.
Bank credit (loan) is an economic relationship in which banks provide borrowers with funds with the condition of their return. These relationships involve the movement of value (loan capital) from the bank (lender) to the borrower (debtor) and back. Borrowers are enterprises of all forms of ownership (joint stock enterprises and firms, state enterprises, private entrepreneurs, etc.), as well as the population.
Lending principles are the fundamental conditions on which a loan is issued to a borrower. These lending principles are:
urgency;
repayment;
payment;
differentiation;
target nature;
security.
The principle of urgency means that the loan must not only be repaid, but repaid within a strictly defined period stipulated by the loan agreement. In market economic conditions, this principle of lending is given special importance. Firstly, the normal provision of social reproduction with money and growth rates depend on its compliance. Secondly, compliance with this principle is necessary to ensure the liquidity of commercial banks themselves. The principles of organizing their work do not allow them to invest attracted credit resources into irrevocable investments. Thirdly, for each individual borrower, compliance with the principle of urgent loan repayment opens up the possibility of obtaining new loans from the bank, and also allows for self-supporting interests to be observed without paying increased interest on overdue loans.
Repayment is the feature that distinguishes credit as an economic category from other economic categories of commodity-money relations. Without repayment, a loan cannot exist. Refundability is the need for timely return after completion of use of funds.
The principle of payment for a loan means that each borrower must pay the bank a certain fee for temporarily borrowing money from him. The implementation of this principle in practice is carried out through the mechanism of bank interest. The bank interest rate is a kind of “price” of the loan. The repayment of the loan is intended to have a stimulating effect on the economic (commercial) calculation of enterprises, encouraging them to increase their own resources and economically spend borrowed funds. For the bank, the repayment of the loan ensures that it covers its costs associated with the payment of interest on other people’s funds attracted into deposits, the costs of maintaining its apparatus, and also ensures the receipt of profit to increase the resource funds of lending and use for its own and other needs.
The principle of credit differentiation is one of the basic principles of lending. This concept refers to the classification of the total number of borrowers in accordance with their reliable, confirmed ability to repay the loan.
Borrowers may raise doubts among the lender regarding the possibility of returning the funds issued to them, or, conversely, they may be reliable, and with proven reliability. For such a classification, a clearly established credit rating scheme is used, which contains a large list of requirements for borrowers, the most important of which is the solvency indicator.
This criterion demonstrates how reliably the debtor has the ability to pay off the loan on time by paying the interest cost of the loan. This property depends on socio-economic factors.
The principle of targeted nature means that in order to receive a loan, the borrower must clearly define the object of lending and the purpose of receiving it. Formulating the purpose of the loan is necessary so that the lender can assess the credit risk, and in case of inappropriate use of the loan, demand its early repayment.
The targeted nature of the loan lies in the need for targeted use of funds received from the lender. Finds practical expression in the relevant section of the loan agreement, which establishes the specific purpose of the loan, as well as in the process of bank control over compliance with this condition by the borrower.
The targeted nature of the loan is used for most credit relationships and expresses the need for the targeted use of the lender’s funds. Typically, the loan agreement stipulates the specific purpose of using the loan received. With the help of such a condition, the lender not only controls compliance with the loan agreement, but also gains confidence in the repayment of the loan and interest, i.e. fulfillment of this principle is additional security for the loan. Violation of this obligation may become the basis for early revocation of the loan or the introduction of an increased (penalty) loan interest rate.
The security principle expresses the need to ensure the protection of the creditor's property interests in the event of a possible violation by the borrower of its assumed obligations and finds practical expression in the methods established by law to ensure the fulfillment of obligations, such as a penalty, pledge, retention, surety, bank guarantee, deposit. Different loans use different collateral methods or even a combination of them. However, they all require a clear organization of the lending process and involve establishing control over its stages, primarily over the targeted use of loans.
There are many different classifications of bank loans based on certain criteria. The significance of the classification of bank loans lies in the fact that the credit function of banks is the main economic function and the economic situation of both the banks themselves and the clients they serve largely depends on how well they implement their credit functions.
In modern Russian practice, loans are classified according to the method of issuance and the loan term. In accordance with the requirements of the Bank of Russia, the loan is provided:
on a one-time basis;
reusably to the extent of need, within the line opened to the borrower and the loan period established in the loan agreement;
by paying for the gap in the organization’s payment turnover in the form of a debit balance on its current (current, correspondent) account;
on the basis of combining the lending potential of a number of banks (consortium loan);
in other ways.
In the modern lending system, there are different types of loans provided:
legal entities;
to individuals.
by current account;
overdraft;
lending within the credit line;
syndicated;
Loans provided to individuals include:
consumer loans;
mortgage loan.
A current loan is provided by the bank to the borrower under a single active-passive account and is a combination of loan and current accounts. A contract loan is a loan for working capital when a bank client regularly needs to finance a gap in the circulation of current assets. All payments are made from it, including:
payment of settlement documents for inventory items and services for core activities;
transfer of funds for opening letters of credit, purchasing check books;
payment of wages and equivalent payments;
repayment of the debit balance on offsets of mutual claims;
payments for operating and other expenses of the organization related to the implementation of core production activities;
transfer of tax payments to the budget;
payment of fines and penalties;
The loan is repaid by crediting all proceeds to the credit account.
The account balance can be debit or credit.
A debit balance indicates that the borrower temporarily lacks his own funds to make current payments and has been issued a loan.
The credit balance shows that the receipt of own funds exceeds the need for current payments, the client does not need a loan and, in essence, has loaned the bank. The credit balance provides the basis for paying interest in favor of the client.
A contract loan is intended to cover costs associated with current production activities. This type of loan is mainly provided to enterprises with a very high level of creditworthiness.
Overdraft is a special form of short-term loan in which the bank provides credit to the client's current or current account. Crediting an account means the bank makes payments from the account, despite the absence of funds on it. In this case, it is considered that the bank has provided the client with a loan in the appropriate amount from the date of such payment. Lending to a client's account (current or current) can only be carried out if it is provided for in the bank account agreement. In addition to the bank account agreement, many commercial banks enter into a special loan agreement (or loan agreement), which stipulates the basic conditions for the provision and repayment of such a loan.
Overdraft should be considered as a preferential form of lending, i.e. this loan should be provided to sufficiently financially stable borrowers in the event of a temporary shortage or lack of funds in their accounts to make payments and for a short period, taking into account the nature of their need for borrowed funds.
Crediting by the bank to the client's settlement (current) account if there is insufficient or no funds on it for making payments is carried out under the limit established for it (i.e. the maximum amount for which transactions can be carried out on the account in excess of the balance of funds on it) and the period within during which the client's loan obligations to the bank must be repaid.
The overdraft limit is determined by the client’s needs for funds to complete payments, taking into account the possibility of regular repayment of the loan, as well as based on the individual characteristics of the borrower (field of activity, prospects for its development, relationship to the bank: shareholder, participant, etc.). The maximum overdraft limit, as a rule, is set by banks at a certain percentage (share) of the average monthly receipts to the client’s settlement (current) account with a given bank for the last 3-6 months. The approximate procedure for determining the lending limit for an overdraft is not specified in the regulatory documents of the Central Bank of the Russian Federation. It has been developed through practice and is completely individual for each bank. The share ranges from 5 to 25%.
Within the limits of the overdraft lending limit established for the borrower, the bank’s provision of overdraft loans and their repayment can be carried out by the borrower client repeatedly throughout the entire term of the agreement (agreement) on the bank’s lending to the client’s account.
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