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Estimation Model in Banking Sector

Model Estimation

In the following CIS countries like Russia, Ukraine, Belarus and Kazakhstan In this stage, we will find out a factor selection process to cover the main problems of banking in CIS countries.

Business Risk

Financial risks at once result in a heavy deficiency in a bank’s capital. This is why the Capital-to-Total assets ratio will be misdeed as a factor in the PD model. No commercial company with permanent losses can be successful in the long-run. A common profitability rate for all businesses, a Balance profit-to-Total assets ratio, was used.

Credit Risk

Asset quality is a prominent factor of future profits and losses calculated by the ratio of Non-performing loans-to-Total loans.

Market And Liquidity Risks

We will use Non-government securities-to-Total assets ratio to assess both liquidity and market risks management carried in a bank. Next the model will be improved with macroeconomic and institutional variables.

Estimation Model in Banking Sector

Conclusion

We will develop a PD model for Russia, Ukraine, Belarus and Kazakhstan. We hope to confirm that bank-mentioned financial statistics, together with macroeconomic and institutional data, provide replaced information to implement the PD of a bank. Banks with a weak balance structure, operating in unfriendly macroeconomic and institutional environment are less fixed. Due to the differences in banking system structure, regulations and development the sources of risk and problems are quite different. This should be taken into account by those who make business with CIS banks. Also this is a point for further integration between CIS economies.

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