FINANCIAL SECURITY OF BANKS AND THEIR SENSITIVITY TO ACCELERATING ECONOMIC CYCLICALITY
DOI:
https://doi.org/10.60022/sis.3.(02).2Keywords:
financial security, banking sector, economic cyclicality, VAR modeling, macroprudential policy, stress testing, bank sensitivity, financial cycleAbstract
The modern economy is characterized by accelerating cyclicality, which increases risks for the banking sector, which is the key to macroeconomic stability. For Ukraine, in the context of constant economic turmoil and martial law, the issue of financial security of banks and their sensitivity to cyclical fluctuations is particularly acute. Studies linking the financial security of banks to the dynamics of the economic cycle are fragmentary, which necessitates a comprehensive analysis.
The study uses linear VAR modeling, Granger causality test, Kilian bootstrap method, and GIRF impulse response decomposition. Quarterly statistical data for the period 2009q1–2025q1 were used for the modeling, including the financial cycle indicator, the share of loans to GDP, profitability, the share of non-performing assets, and the loan-to-deposit ratio.
The modeling showed that the direct impact of the acceleration of cyclicality on the safety and efficiency of banking activities is mixed. In the short term (up to one year), financial cycle shocks depress bank profitability, while in the long term (after one and a half years) they contribute to its recovery. An increase in the share of loans in GDP temporarily worsens the liquidity of the banking system. The most sensitive to cyclical fluctuations were the return on assets and capital, as well as the share of non-performing assets.
The scientific novelty lies in the construction and empirical modeling of a system of relationships between the financial cycle and financial security indicators of Ukrainian banks, which allowed to quantify their sensitivity to macroeconomic fluctuations and identify the nonlinear nature of their impact.
The results of the study can be used by the NBU to improve its macroprudential policy, in particular to calibrate the countercyclical capital buffer. Banking institutions can apply the findings to develop more effective risk management strategies and increase their resilience to cyclical shocks. Prospects for further research include the development of an integrated stress-testing model taking into account macroeconomic cycles, analysis of the impact of FinTech and ESG factors on the cyclical stability of banks, as well as a comparative analysis of strategies to improve financial security in countries with different levels of development.
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