Scientific and methodical approach to improvement of the borrowing bank creditworthiness assessing based on early detection of bankruptcy traits
Keywords:
bankruptcy probability, scientific and methodical approach, creditworthiness, bank-borrower, indicatorsAbstract
Introduction. The paper has noted that an important component in the process of assessing the creditworthiness of borrowing banks is the assessment of their bankruptcy probability.
Method (methodology).The use of parametric and nonparametric methods for assessing the probability of bank bankruptcy is identified. The parametric methods are statistical and used to classify the observations by two or more groups depending on the individual characteristics of observation. The nonparametric method is based on trait recognition, the peculiarity of which is the complete utilization of information represented by interaction of independent variables.
Results. It has been worked out the scientific and methodical approach to the methods of assessing the bankruptcy probability, which should be used in the counterparty bankmonitoring system. This model provides six phases. The first phase involves the calculation describing the bank major activities and operating environment status. The second phase of the method is normalization. The third phase is generalization of normalized indicators into six coefficients using the arithmetic mean. The fourth phase of the method provides the determination of the weight coefficients for each group of coefficients. The fifth phase of the developed method includes the calculation of a complex index characterizing the probability of bank bankruptcy by the arithmetic mean of the weighted coefficients. The final phase involves the determination of the bank bankruptcy probability.
This model allows rapid response to environmental conditions by changing the weight coefficients, thus providing the accurate and actual results. The scientific value of the proposed method for determination of the bank bankruptcy probability is its forecasting and the ability to create all required conditions to avoid or mitigate the adverse consequences of the growing threats which are generated by the bank operating environment on the basis of the findings.
Scope of application. On the basis of received data, the bank management can take timely preventive measures to prevent or avoid the adverse effects of credit risk realization in relations with the borrowing bank.
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