THE USA JOURNALS
THE AMERICAN JOURNAL OF MANAGEMENT AND ECONOMICS INNOVATIONS (ISSN- 2693-0811)
VOLUME 06 ISSUE08
114
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PUBLISHED DATE: - 31-08-2024
DOI: -
https://doi.org/10.37547/tajmei/Volume06Issue08-10
PRIORITY DIRECTIONS OF PROVIDING
FINANCIAL STABILITY OF COMMERCIAL
BANKS IN THE CAPITAL MARKET
Khasanov Khayrullo Nasrullaevich
Associate Professor of Tashkent State University of Economics, Uzbekistan
INTRODUCTION
The role of commercial banks is important in the
modernization of economic sectors, the positive
resolution of issues related to the financing of large
production enterprises, and the organization of
financial activities of corporate structures. It
should be noted separately that in recent years
significant work has been carried out in
comprehensive development of commercial banks,
acceleration of transformation processes in banks,
reduction of state participation in their authorized
capital. Of course, in these processes, it is important
to regulate the activities of commercial banks in the
state, to improve regulatory documents based on
international standards.
In the Development Strategy of New Uzbekistan for
2022-2026, "completing transformation processes
in commercial banks with a state share and
bringing the private sector's share in bank assets
up to 60% by the end of 2026"[1] is defined as one
of the main goals. In this process, ensuring the
financial
stability
of
commercial
banks,
coordinating the corporate management policy in
accordance with the changes in the external
environment, developing relations with the capital
market in the formation of additional sources of
financial support is one of the urgent issues. In the
field of scientific activity of our country, scientific
research is being carried out to improve the activity
of commercial banks and develop its special
directions and fields. Based on the above, it should
be noted that the development of scientific
proposals and practical recommendations for
ensuring the financial stability of commercial
banks is considered one of the important tasks in
the development of the financial sector of the
economy.
Review of literature
Financial stability of commercial banks is one of the
RESEARCH ARTICLE
Open Access
Abstract
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main components of their successful operation.
Ensuring the financial stability of banks is an
important factor not only for the bank itself but
also for the financial system of the entire country.
To find ways to study, analyze and improve the
effectiveness of this topic, several scientists have
conducted research.
According to O. B. Salomov, one of the scientists of
our country, said "the financial stability of
commercial banks is the ability to withstand the
negative consequences of the internal and external
environment by strengthening its position in the
market of banking services while ensuring the
positive state of its financial indicators and
activities in the process of making a profit" [2]. The
capacity of commercial banks to provide
investment loans is primarily determined by the
adequacy of their resource base. The first part of
the resource base of commercial banks of our
country consists of capital, and the second part
consists of deposits. In recent years, commercial
banks have tended to increase both capital bases
and deposit bases. It is worth noting that, although
deposits in commercial banks of our republic have
a general growth trend, their base should be
further strengthened at the expense of long-term
deposits [3]. Bank liquidity refers to the bank's
ability to quickly and with minimal costs turn its
assets into cash to fulfill its obligations. If the
liquidity situation of commercial banks is not
effectively managed, if a practical action plan is not
developed in case of emergencies, in most cases
banks will face a liquidity crisis or even
bankruptcy. Maintaining a balance between
meeting short-term liquidity needs and obtaining
high profits at the expense of long-term
investments in illiquid assets is the main
component of bank management [4].
According to the conclusion of F. Mishkin, a
professor at the Columbia University of the USA,
"main attention should be paid to financial
innovations in ensuring the stability of commercial
banks. Significant fluctuations in interest rates are
an important economic factor that directly and
strongly affects changes in demand for new
financial products" [5]. Russian economist E.L.
Zernova emphasized that the strategy of managing
bank operations in the conditions of instability or
crisis together with the elements of financial
stability can guarantee the uninterrupted
operation of the bank in the region [6]. According
to V. Biloposhka, central banks such as financial
institutions play an extraordinary role in ensuring
the country's financial stability. The role of central
banks in ensuring overall financial stability is to
prevent the spread of systemic instability in the
banking sector to the entire financial sector and to
ensure positive socio-economic consequences for
the entire country [7].
In her research, Lucy found that public trust in
banks is related to industry-level financial stability
indicators, and that bank-level risk measures play
only a minimal or at best an additional role. He
stated that this result reveals the important role of
the overall stability of the banking sector in
determining the public's perception of the safety
and soundness of individual banks, and justifies the
leading role of industry-level stability in ensuring
trust in banks [8]. Y. Rizki emphasized the
importance for financial sector regulators to
understand the relationship between financial
technology (FinTech) and financial stability. He
stated that the Financial Stability Board highlights
the systemic challenges of technological activities,
including operational and cyber risks, which in
turn can negatively impact financial stability [9].
However, the development of FinTech allows for
more innovation that provides more efficient
financial services than traditional banking, and
therefore the banking industry may have some
losses from the existence of FinTech.
METHODOLOGY
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During the research, the methods used in ensuring
financial stability in commercial banks, as well as
the important indicators affecting financial
stability were analyzed. Along with studying the
current state of these indicators in our country, the
reforms carried out in the banking system and the
study of theoretical and empirical literature on this
topic were widely used, and thus methods such as
critical thinking and systematic approach were
widely used.
ANALYSIS AND RESULTS
The activities of the Central Bank of the Republic of
Uzbekistan in 2023, on the one hand, to ensure the
formation of the inflation level within the forecast
indicator in the conditions of increased high
investment and production activity in the
economy, continuation of financial support from
the state, and on the other hand, in the conditions
of the increase in the cost of attracting external
resources despite the slowdown of global
inflationary processes focused on maintaining the
financial stability of the banking system at an
acceptable level.
In 2023, the global economy will enter a period of
"stabilized volatility" (stabilized volatility) - a
period of new traditional uncertainties, which, in
turn, will be manifested by the increasing influence
of geopolitical processes on the economy -
inflation, disruptions in supply chains, changes in
the structure of budget expenditures and other
trends. The International Monetary Fund reported
that global economic growth in 2023 slowed by 0.3
percentage points compared to 2022 to 3.2
percent2. In this case, it was observed that
economic growth in developed countries slowed
down from 2.6% to 1.6% (-1.0 f.p.) in 2022, while
in developing economies this indicator accelerated
from 4.1% to 4.3%.
In 2023, the net profit of the banking system
increased by 24% compared to 2022 and
amounted to 12.4 trillion soums. In this case, the
amount of gross revenues received amounted to
128.7 trillion soums and expenses to 116.4 trillion
soums. Interest income accounted for 67% of the
total income of banks, and non-interest income
accounted for 33%. 88.3% of interest income
comes from loans and customer obligations, 6.2%
from funds placed in other banks, 5.5% from
securities. In 2023, there were positive changes in
the profitability indicators of the banking system.
At the end of the reporting year, the profitability of
banking system assets increased by 0.1 percentage
points to 2.6%, and the return on capital increased
by 0.9 percentage points to 14.2% ( Figure 1).
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Figure 1. Dynamics of banking system return on assets (ROA).
1
By the end of 2022, the banking system's return on
assets has almost doubled compared to the
beginning of the year, to 2.5 percent, and the return
on capital has reached 13.3 percent. Here, factors
such as net interest margin (3.4 percent), ratio of
non-interest income to assets (6 percent), leverage
ratio (0.6 percent), reduction of tax burden on
profit (0.8 percent) had a positive effect on the
change of capital profitability. , the growth of
reserves (-2.5 percent) and the ratio of non-
interest expenses to liabilities (-1.1 percent) had a
negative impact.
In 2023, the total capital of commercial banks
increased by 22% to 97 trillion soums by the end of
the year, and the authorized capital increased by
15% to nearly 69 trillion soums. Also, by the end of
2023, the amount of regulatory capital in the
banking system was 106 trillion soums and risk-
weighted assets was 604 trillion soums, the capital
adequacy ratio was 17.5 percent (minimum
requirement 13 percent).
The fact that the capital adequacy ratio of the
banking system remains high at the end of the year
compared to the indicators formed in other months
is due to the change in the calculation methodology
of the capital adequacy ratio. In 2023, the amount
of highly liquid assets decreased by 7.6 trillion
soums or 7% to 97 trillion soums. In this case, as
part of highly liquid assets, assets in national
currency decreased by 4.5 trillion soums, and
assets in foreign currency decreased by 3.1 trillion
soums, their volume was 46.5 and 50.4 trillion
soums, respectively (Table 1).
5.7
7
5.4
12.6
15.2
2.2
2.2
1.3
2.5
2.6
0
2
4
6
8
10
12
14
16
2019 y
2020 y
2021 y
2022 y
2023 y
Profit before tax (trln. soum)
Return on assets (%)
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Table 1
Dynamics of composition and share of highly liquid assets in total assets
2
№
Indicators
2019 y
2020 y
2021 y
2022 y
2023 y
1.
Cash
5,7
7,9
10,7
19,3
20,2
2.
Government
securities
4,7
13,6
15,7
25,2
22,9
3.
Amount of highly
liquid assets
30,5
50,0
76,0
104,5
96,9
4.
Funds in the
Central Bank
19,6
23,5
29,4
33,9
30,4
5.
Funds in other
banks
11,4
16,2
19,8
28,4
23,5
6.
Share of highly
liquid assets in
total assets (%)
11,3
14,2
17,7
19,4
14,9
The decrease in highly liquid assets occurred
against the backdrop of the increase in the cost of
external resources because of the central banks of
developed countries increasing their key rates, and
investors directing their funds to safe assets amid
global instability. Despite the decrease in the
volume of highly liquid assets, short-term liquidity
(LCR) and long-term liquidity indicators (NSFR) in
the banking system were formed at an acceptable
level due to the formation of stable internal
resource funds because of the 29% increase in
national currency deposits (38 trillion soums).
Although the liquidity coverage rate (short-term
liquidity) of the banking system decreased from
212 percent to 165 percent (minimum
requirement 100 percent) during the year, even in
the event of unexpected stress situations in the
banking system, banks could fully fulfill their
obligations to customers for the next 30 days.
CONCLUSION
It is necessary to implement the following
measures to strengthen financial stability in
commercial banks: attract stable deposits, develop
a development strategy, retrain and improve the
skills of employees, etc. Attracting stable deposits
To ensure reliable financing of the bank, it is
important to attract stable and long-term deposits.
And the development strategy commercial banks
should have a clear development strategy that will
help them achieve sustainable growth and increase
profits.
The financial stability of commercial banks can be
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defined both from the perspective of a narrow
concept (liquidity of the bank, solvency) and the
perspective of a broad concept - i.e. recovery of its
financial condition after the impact of various
destabilizing factors (recovery of the situation - the
bank's ability to ensure financial stability, return to
its previous position, its continue to fulfill their
obligations and tasks and achieve their goals and
objectives).
The complex model of assessment of financial
stability in banks can be defined as a system that
includes various assessment models (rating
system, remote monitoring and risk assessment)
that complement each other and allow to formation
a situation about the current state of the bank. The
structure of the model includes a general
description of the evaluation system (evaluation
criteria and methods, the order of its formation);
indicators that meet individual criteria; a method
of forming a generalized assessment by criteria and
by the bank as a whole.
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