Open AccessMETHODOLOGY FOR ASSESSING THE BORROWER’S CREDITWORTHINESS: PRACTICAL ASPECT
Author(s) -
Iryna Kramarenko,
Liliia KOZACHENKO
Publication year - 2018
Publication title -
ekonomìka ukraïni
Language(s) - English
Resource type - Journals
eISSN - 2522-9478
pISSN - 2522-9303
DOI - 10.15407/economyukr.2018.05.049
Subject(s) - solvency , business , profitability index , financial system , net interest income , finance , interest rate , market liquidity
Today, the banking system does not fulfill its main task, since it does not finance or lend to the real sector of the economy, and a quarter of the loans provided are written off and unpaid. The current situation in Ukraine necessitates studying the ways and means to improve the assessment of the borrower’s creditworthiness as the main direction for stabilizing and improving the efficient lending activity of com-mercial bank. The purpose of the study is: (i) to access the current state of bank lending to business; (ii) to access the borrower’s creditworthiness and its influence on the amount of overdue loans; (iii) to determine provision for impairment of loans; (iv) to provide practical recommendations for improving the borrower’s creditworthiness on the example of JSC Raiffeisen Bank Aval. The annual amount of loans granted by the banking system to enterprises in-creases, while the indebtedness of the customers also grows. Thus, the share of overdue loans in August 2017 amounted to 22.65% of the total loans granted in Ukraine. The JSC Raiffeisen Bank Aval is among the leaders in providing loans. During the period under study, interest income of the bank decreased significantly, this indicates a low profitability of credit operations. When analyzing the provisions for impairment, it was revealed that more than 28% of loans are written-off, and this is primarily due to a wrong assessment of the borrower’s solvency. When assessing the financial condition of the borrower, according to the meth-odology of JSC Raiffeisen Bank Aval, it is determined that performance indicators of the potential payer of loans are not taken into account. Also, the methodology has no rating or scoring of accounting ratios used in the analysis of solvency of the bor-rower. The rationale is to use, when assessing the solvency of the borrower of JSC Raiffeisen Bank Aval, the Decree “About the statement of Regulations about deter-mination of Ukrainian banks credit exposure in active banking operations”, which came into force on January 3, 2017.