It is not always easy to determine which banks will soon go bankrupt. But some signs may clearly indicate the unreliability of the financial institution
Today, there are 75 banks operating in Ukraine, but not all institutions can claim credibility and stability. The coronovirus epidemic has not only shaken the nation’s economy, but the entire world’s system – the crisis it causes is in full swing and its consequences for the banking sector are not as predictable as we would like.
New challenges faced by banks during an epidemic include outflow of deposits, insolvency of the population and raising interest rates and levying fines on existing loan agreements. Due to quarantine measures, some banks have set out to reduce branches and personnel, for 15% of banking institutions, experts predict a complete exit from the market. But it all depends on the date of complete quarantine measures and the pace of economic recovery.
In such a situation, the selection of a bank has become an even more thorough process, especially in a business environment where the suspension of investment creates demand to find a stable place to store liabilities. “Dying” banks are not always easy to identify due to inaccurate statements, but some indications may clearly indicate a problem of the institution.
Overdue and bad debt
The level of bad bank loans reflects the quality of its loan portfolio. If the number of stitched loans is large, the bank does not examine the customers well and calculates the credit risks poorly. For example, Nadra, a large bank, showed the highest level of bad loans – 88% before the start of the liquidation process.
Bad loans make the bank financially unstable, leading to loss of capitalization and reduced profitability, which in itself often goes bankrupt. The level of problem loans can be checked in the statements of the selected bank.
Deposit rates and lots of advertisements
If a bank already has financial problems, the need for money naturally increases. In such cases, the management of the financial institution decides to somehow lure new investors. Usually this method is nothing more than high rates on deposits.
It also includes all kinds of publicity and loud call advertising campaigns – to “die” in such a way that banks are delaying the moment of bankruptcy and attracting as much external money as possible.
Rating and forecast
International agencies such as Fitch, S&P or Moody’s monitor the status of banks. The downgrade and systematic deterioration of forecasts indicate serious problems for the bank.
Such ratings give timely warnings about the speculative level of financial institution’s independent credit, analyze financial stability and warn about the risk of default. Agency forecasts show negative changes in the bank’s business environment or worsening economic conditions over time.
Restrictions and Media Activity
To withdraw funds, many troubled banks impose several restrictions on withdrawing money and closing deposits – simple procedures in such an institution are burdened with applications, permits, and are considered for several days. Communication with a troubled bank is usually complex and stressful.
Often, in anticipation of bankruptcy, the bank’s leadership launched media campaigns that criticized the NBU and called for protests, bringing their problems on the public plane. Such statements of the bank can be easily found on the network, while there is usually little information noise around stable institutions.
Importance of bank for its owners
First of all you need to determine the owner of the bank – according to Ukrainian law, this is open data. An opportunity to study the entire ownership structure of banking institutions on the official website of NBU.
Usually we are talking about public people, but regardless, the state register does not have the option to check all the companies registered with the bank owner. The more important part of the business will be for the bank owner, forecasting for the continued existence of a better financial institution. Problems in the owner’s non-banking business can also lead to bankruptcy.
For example, the owner of bank finance and credit businessman Constantin Zhivego was also the owner of a company engaged in part-time iron ore extraction. Problems in the commodity business made it impossible to create the capital needed to continue bank finance and credit work, as a result, it all ended with the liquidation of the financial institution.
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