A Ranking System for Evaluating the Reliability of Commercial Bank
Journal Title: Бізнес Інформ - Year 2015, Vol 12, Issue 0
Abstract
The article is aimed at studying the substance of bank reliability and developing a rating methodology for evaluating the reliability of banking institution, which will be comparable to the current economic situation. The article proposes a ranking system for evaluating the reliability of banks, based on estimation of score values of indicators of financial performance, which then are multiplied by the weighting factor. An algorithm for calculating such a reliability rating of bank, consisting of seven stages, has been determined. A bank reliability rating is calculated on the basis of 20 quantitative plus 1 qualitative indicators, by means of which are evaluated: liquidity and solvency of bank; financial stability; profitability; capital adequacy; quality of risk management and quality of the loan portfolio. The weighing coefficients are determined on the basis of importance of an indicator while ensuring bank stability and ability to fulfill its obligations towards depositors, lenders or investors. It has been found that for evaluating the reliability of banks the further four quality indicators will be required, which have a negative impact on the reliability and liquidity of bank. On the results of the calculation of reliability rating, the author has suggested to group the largest banks of Ukraine according to the following 4 classes: class «A» - the most reliable banks; class «B» - trusted banks; class «C» - less reliable banks; class «D» - unreliable banks. The proposed methodology allows to neutralize the influence of certain factors on the reliability of bank and gives the mobility to the rating management when external conditions are changed.
Authors and Affiliations
Oleksandr Shvarts
Keywords
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