Provision of the financial stability of commercial banks in Kazakhstan
Table of contents: The Kazakh-American Free University Academic Journal №10 - 2018
Li Ludmila , Kazakh American Free University, Kazakhstan
Bordiyanu Ilona, PhD, Kazakh American Free University, Kazakhstan
The dynamic development of the banking sector in the constantly
changing economic environment brings new aspects and problems to the activities
of commercial banks, the solution of which largely depends on the level of
their financial stability. The strong financial position of the banking
institution is not only the basis for the viability and the opportunity for further
development in the banking services market, but also the creation of a
conflict-free external and internal environment, the preservation and
maintenance of the image, which is important in the current conditions for the
development of a "civilized" banking business. At the same time, a
commercial bank is a "social", "public" institution, in
which the interests of various and numerous economic entities are combined,
each of which assesses its activities through a spectrum of individual
problems. Only a financially stable bank is able to fully meet the needs of all
All the existing approaches to assessing the financial stability of
a commercial bank can be divided into three main blocks :
- basic approach of the National Bank;
- accounting approach;
- expert approach.
The approach of the National Bank is based on comparing the most
important characteristics of the bank with the regulatory level; the assignment
of a bank to a particular group is carried out mainly on an expert rating; a
distinctive feature of the approach used when banks are divided into groups is
the orientation toward the absence of negative signs.
The essence of the accounting approach to assessing the bank's
financial stability is that the bank's quantitative indicators are analyzed on
the basis of official reporting. According to the directions of analysis in
this approach, there are the graphical method, the integral method, the
coefficient method and the rating method.
The main difference between the expert approach and accounting
approach is that not only quantitative but also qualitative information on the
bank is analyzed. In this case, any available information is used .
According to the directions of analysis in this approach, as well as
in accounting, it is possible to highlight the integral method, the coefficient
method, the rating method and the expert method.
Having described the existing approaches to assessing the financial
stability of commercial banks and considering the merits and demerits of
methods for assessing financial sustainability, there is a conclusion that the
most effective is the accounting approach based on the following methods:
coefficient, rating and expert.
Proceeding from this, author's development of a methodical approach
to the assessment of the financial stability of a commercial bank is proposed.
The proposed methodical approach consists of 7 stages, which are characterized
by the presence of direct and inverse connections. Transition to each
subsequent stage is carried out only after the implementation of the previous
stage. Reverse links provide the ability to return to previous stages in the
case of obtaining results that do not meet certain requirements. A block diagram
of the methodical approach is presented in the figure 1.
At the first stage, there is a detection of the principal features
of a commercial bank as an object for assessing financial stability.
At the second stage, a system of financial sustainability criteria
for a commercial bank is revealed.
The conducted researches have revealed and specified the following
criteria of stable functioning of a commercial bank: the capital base of the
bank, liquidity, profitability, quality of assets.
At the third stage, the methods necessary for assessing the
financial stability of a commercial bank are detected.
At the fourth stage, the coefficients of financial stability of a
commercial bank are determined in accordance with the valuation techniques
The development of the coefficients of financial stability of a commercial
bank was based on the following principles of their selection:
- complexity, that is, obtaining an overall assessment of the
financial stability of the bank, rather than individual areas of its
activities, while not pursuing the goal of comparing the indicators of this
bank with other;
- focus on the characteristics of financial stability by key
criteria of the bank: profitability of operations, capital base, liquidity,
- suitability for identifying the main trends in the bank's financial
All the coefficients of the system are interrelated and the
definition of the place of each is due to its significance in this aspect. A
differentiated approach to the construction of the system made it possible to
deepen the qualitative characteristics of banking activity, considered in the
unity of the main grouping characteristics. The universality of the system lies
in the fact that all its ratios can be directly or indirectly quantified .
In our opinion, the ratios determining the financial stability of a
commercial bank can be grouped as follows:
- base capital ratios;
- liquidity ratios;
- profitability ratios;
- asset quality ratios.
1. Stages of the methodical approach to the assessment of the financial
stability of a commercial bank
In practice, a sufficiently large number of coefficients is used to
evaluate these criteria. The problem arises of choosing from the set of ratios
only those that have the greatest impact on the bank's financial stability. The
choice of ratios should be based not on subjective judgments of analysts, but
on establishing a strict dependence on these coefficients of financial stability
of banks (Table 1).
Table 1. Ratios used in the methodological
C - equity capital;
Awei - bank assets weighted by risk level;
A - total assets of the bank;
Arisk0 - bank assets with zero risk level;
Lah - highly liquid assets of the bank;
BF - borrowed funds;
Ld – liabilities on demand;
Lat - liquid assets of a bank;
Ldt - liabilities on demand and liabilities of the bank to creditors
(investors) in the next 30 calendar days;
NP - bank net profit;
BL - bad loans;
LD - loans, loan and equivalent debt;
RPLLf - actually formed reserve for possible losses on loans;
Ainc - assets that generate income.
The coefficients presented in Table 1 are the most revealing and
determine the capital base of the bank, its liquidity, profitability and
quality of assets with maximum completeness and accuracy. Using the coefficient
system proposed by our methodology will allow us to assess the financial
stability of commercial banks quite professionally .
At the fifth stage, an algorithm is formed to identify typological
groups of commercial banks that distinguish in their different levels of
The essence of the stage is to determine the correspondence of the
values of the coefficients selected at the previous stage to the particular
state of financial stability of the commercial bank. As a result of the
calculation of each coefficient, a sequence of actions is formed, the end
result of which is the final assessment of the financial stability of a
commercial bank and its attribution, based on this assessment, to one of five
typological groups that differ in the level of financial stability.
Commercial banks will belong to one or another typological group
based on the values of one or several coefficients. Also at this stage it is
necessary to determine which approaches should be used to establish the values
of the selected coefficients in order to fully assess the financial stability
of the commercial banks under investigation.
The sixth stage is the formation and analysis of typological groups
of commercial banks. Calculation of the coefficients determined at the previous
stage of this methodical approach allows us to classify a commercial bank as
one of five typological groups for financial sustainability: absolutely
financially stable; financially sustainable; relatively financially sustainable;
relatively financially unsustainable; financially unstable.
The algorithm for assessing the bank's financial stability includes
the following sequence of procedures, depicted in the figure 2.
AFSCB - absolutely financially stable commercial
banks; FSCB - financially stable commercial banks; RFSCB - relatively
financially sustainable commercial banks; RFUCB - relatively financially
unsustainable commercial banks; FUCB - financially unstable commercial banks
2 - Algorithm for assessing financial sustainability of a commercial bank
At the seventh stage, a system of measures and recommendations aimed
at improving the financial stability of a commercial bank is proposed.
Summarizing all of the above, the financial stability is the most
important characteristic of the financial and economic activity of any business
entity in a market economy.
The financial stability of a commercial bank is a qualitative
characteristic of its activities based on the ability to form and effectively
use high-quality financial flows that cause the commercial bank to carry out
socially significant functions, the formation of sufficient reserves to cover
possible losses, and its further development in the banking services market.
The financial stability of the bank is the ability to adapt to changes in the
economic environment in a timely manner, this is the non-compliance with the
risk of losses, this is the basis for a stable relationship with customers and
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Table of contents: The Kazakh-American Free University Academic Journal №10 - 2018