Do the banks of the Western region of Ukraine operate effectively?

Nowadays the banking system of Ukraine is becoming more concentrated – commercial banks have a strong tendency towards consolidation. This ensures them keeping higher levels of liquidity, profitability, and competitiveness. However, regional banks with small amounts of assets and branch network straight continue to operate in Ukraine. So, are their activities effective or not?

Commercial banks registered in Western Ukraine (among them – five in Lviv, one in the city of Lutsk) are taken as the objects of study. We present the size of their assets in Table 1 . As you can see, five of the six banks belong to group IV according to the ranking of the National Bank of Ukraine (NBU), because the size of their assets are less than 3 000 000 thousand UAH. [2], only Kredobank belongs to the third group with assets of 4,381,847 thousand UAH. Among the 180 commercial banks operating in Ukraine, banks of the Western Region have quite low rankings by assets: Kredobank, Idea Bank, VS Bank are in the first half of the ranking (positions №48, №62, №75), Lviv, Zakhidincombank, Oksibank are in the second half of the ranking (positions №115, №120, №153).

Table 1.

Assets of commercial banks in the Western region of Ukraine as on 01.01.2014

Bank

City

Assets,

thousand UAH

Group by the NBU ranking

Position at the ranking by assets

Kredobank

Lviv

4 381 847

ІІІ

48

Idea Bank

Lviv

2 866 522

IV

62

VS Bank

Lviv

2 217 625

IV

75

Lviv

Lviv

908 453

IV

115

Zakhidincombank

Lutsk

785 866

IV

120

Oksibank

Lviv

418 768

IV

153

 Source: Developed by the author based on data from the National Bank of Ukraine[1]

Let’s estimate the profitability of the commercial banks in Western Ukraine according to the following indicators:
1) return on assets (ROA). This indicator can be used to assess the rate of the bank’s management. Calculated by dividing the net profit of the bank to the size of its assets, the optimal value is not less than 1%;
2) return on equity (ROE). This indicator shows the feasibility and effectiveness of investments made by shareholders and the bank’s ability to manage its assets. Calculated as the ratio of net profit to equity of commercial banks, the optimal value is 15%;
3) net spread shows the degree of consistency of the interest policy (loan and deposit rates). Calculated as the ratio of the interest (received and paid) rates, the optimal value is not less than 1.25%.

The analysis of Table 2 shows the following:
1) the dynamics of ROA of these banks has a downward trend, besides five of six banks do not meet the optimal value for this parameter;
2) all analyzed banks have a negative downward trend on ROE, and indicators of Oksibank, Zakhidincombank, Lviv are close to zero, Kredobank has a negative ROE;
3) net spread also tends to decrease, and although it satisfies the optimal value in some periods, it still remains very low.

Table 2.

Dynamics of profitability indicators of commercial banks in the Western region of Ukraine for 2011-2013.

Bank

ROA, %

ROE, %

Net spread, %

2011

2012

2013*

2011

2012

2013*

2011

2012

2013*

Kredobank

2,27

-1,47

-2,39

13,92

-9,26

-17,75

2,56

6,05

3,65

Idea Bank

0,57

0,43

0,16

3,31

3,39

1,27

2,88

-0,30

3,53

VS Bank

1,34

2,56

1,70

11,95

14,89

7,76

6,83

6,94

4,36

Lviv

-6,77

0,21

0,10

-44,86

1,45

0,71

1,62

1,75

0,59

Zakhidincombank

0,11

0,03

0,00

0,40

0,10

0,01

2,06

0,90

-0,24

Oksibank

1,22

0,55

0,08

2,92

1,28

0,22

9,26

6,47

4,32

 Source: Developed by the author based on data from Unimonitor [2] 2013*-data for ІІІ quarter of 2013

As you can see, the financial conditions of the commercial banks in Western Ukraine remains to be weak and tends to decrease. Analyzed banks have low positions in rankings by assets. To improve their competitiveness, to increase the level of profitability and liquidity larger amounts of financial resources are needed. Mergers and acquisitions (M&A) can provide commercial banks such resources together with more extensive network of offices, high-quality management and customer trust .
Read more about trends in the reorganization (M&A) of commercial banks in the article  “Тенденції M&A у банківській сфері в Україні”.

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  1. National Bank of Ukraine. – Retrieved from: http:// bank.gov.ua
  2. Unimonitor. – Retrieved from: http://unimonitor.unicredit-bank.com.ua

 

 

 

 

 

 

 

 

 

 

 

 

Мар'яна Щегельська

Mariana Shchehelska (Kucheruk)

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