Improving the bank credit risk management by means of regulation of its branch concentration
Abstract
The article presents a scientific and methodical approach to the regulation of the industry concentration of credit risk of banks, based on the analysis and prediction of the dynamics of development of branches with different dominant products and technologies for their production. It is based on the idea that the loans to branches that are at the stage of growth and show a steady positive dynamics of output and profitability of operations are considered to be the least risky. Existing approaches and models of credit risk assessment are the market ones. Their use is fully justified in the case of acceptance of the hypothesis about the effectiveness of the stock market as an indicator of sustainability of enterprises. In modern conditions, when the stock market has lost its economic function of determining the value of companies to raise their funds, in terms of institutional and technological backwardness of the stock market the possibility of using these models are very limited. The objective of this article is to ground the scientific and methodical approach to credit risk management of the bank on the basis of regulating their branch concentration and developing on this basis practical recommendations to diversify its loan portfolio, taking into account branch factors. the developed procedure of the loan portfolio formation is the basis for the implementation of the proposed approach to the regulation of the branch concentration of bank credit risk. It includes analyzing of the existing loan portfolio and choosing of branches to form a new portfolio, building and analyzing time series of branch revenues and profitability, calculating of risk indicators for each branch based on the limits of sales revenues and profitability in the forecast period, loan portfolio optimization by minimizing the risk, taking into account branches loan limits with achieving the expected return. The economic and mathematic model of credit portfolio formation taking into consideration a branch factor is worked out. Recommendations on bank credit risks branch concentration regulation improving is offered.
Keywords
References
Stiglitz, J.E. (2011). Freefall: America, Free Markets, and the Sinking of the World Economy. Moskow: Eksmo [in Russian].
Morsman, E. M. Jr. (2004). The Art of Commercial Lending. Moskow: Alpinabook [in Russian].
Merton, R. (1974). On the Pricing of Corporate Debt: The Risk Structure of Interest Rates. Journal of Finance, 29(2), 449-470.
Artzner, P., Delbaen, F., Eber, J. & Heath D. (1999). Coherent Measures of Risk. Mathematical Finance, 9 (3), 203-228.
Duffie, D. & Singleton, K. (1999). Modeling Term Structures of Defaultable bonds. Review of Financial Studies, 12(4), 687-720.
Jarrow, R. & Turnbull, S. (1995). Pricing Derivatives on Financial Securities Subject to Credit Risk. The Journal of Finance, 50(1), 53-85.
Düllmann, K. & Masschelein , N. (2006). Sector concentration in loan portfolios and economic capital. Discussion Paper. Series 2: Banking and Financial Studies, 9. Retrieved from http://www.bundesbank.de/download/bankenaufsicht/dkp/200609dkp_b.pdf.
Mishhenko, A.V. & Chizhova, A.S. (2008). Methodology of credit risk management and optimal formation of loan portfolio. Financial management, 1, 91-105 [in Russian].
Pomazanov, M.V. (2010). An advanced approach to credit risk management in the bank: methodology, practice, recommendations. Guidebook. Moskow: Reglament-media Publishing house [in Russian].
Pustovalova, T.A. & Kutuev, R.R. (2008). Credit risk management of the loan portfolio of a commercial bank. Vestnik of Saint Petersburg University. Series 8, Issue 1, 135-155 [in Russian].
Solozhencev, E.D., Stepanova, N.V. & Karasev, V.V. (2005). Transparency of methods for assessing credit risks and ratings. St.Petersburg: Saint Petersburg University Publishing house [in Russian].
Annenkov, I.V., Matjushin, A.V., Polovjan, A.V. & Ohten', A.A. (2008). Improvement of long-term crediting of industrial enterprises: institutional aspect. Donetsk: NAS of Ukraine. Institute of Industrial Economics [in Russian].
Halasyuk, V.V. (2001). Problems of assessing the creditworthiness of borrowers. Visnyk of the National Bank of Ukraine, 9, 54-57 [in Ukrainian].
Prymostka, L.O. (2004). Bank Credit Risk: Issues of Assessment and Management. Finance of Ukraine, 8, 118-125 [in Ukrainian].
Bugel, U.V. (2009). Commercial bank's credit portfolio management in market conditions managing. Thesis for a candidate's degree. Specialty 08.00.08.- money, finance and credit. Ternopil: National Economic University [in Ukrainian].
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), 77-91.
Kovaljov, P.P. (2006). Limitation of corporate lending to legal entities and credit institutions. Upravlenie korporativnymi finansami, 2 (14), 38-51 [in Russian].
Foster, R.N. (1987). Review of Innovation: The Attacker's Advantage. Moskow: Progress Publishing house [in Russian].
Vishnevskiy, V. P. (Ed.). (2011). How to justify the budget-tax policy of the state? Experience in the scientific design and implementation of an auto-matic system of tracking the budget process at the regional level. Donetsk: NAS of Ukraine. Institute of Industrial Economics [in Russian].
Prokopenko, R.V. (2008). Selection of industries for building a model of the economy of the region when planning the budget. Modeli upravlenija v rynochnoj jekonomike, 11, 77-86 [in Russian].
Refbacks
- There are currently no refbacks.