Introduction

The absence of positive displacements in Ukrainian economic system caused the chief inclinations in banking system: flow-out of juridical individuals and common people sedimentations, worsening quality of assets ( in footings of profitableness ) , increasing figure of Bankss with impermanent disposal. All said above negatively influences the profitableness of Ukrainian Bankss ( UB ) . Harmonizing to information at NBU web site ( www.bank.gov.ua ) negative fiscal consequences of UB are go oning their rise ( 18.4 measure grn at 01.08.09 ) . Partially it can be explained by fact that disbursals of Bankss increase faster than net incomes. Second one-fourth a row the activity of banking sector is unprofitable in malice of some liberalisation of modesty aspirations. Negative fiscal consequence is demonstrated by 64 Bankss out of 181 listed on NBU web site ; some establishments besides report a important diminution in capital. Among the determiners of negative fiscal consequences are: high cost of resources and important diminution in plus quality. The latter led to increase of reserve tax write-offs for active operations ( about 40 % of mean entire bank disbursals ) .

The prognosiss of evaluation bureaus as to UB are unfavourable. Taking into history all said above I find it rather interesting to calculate out the grade of “ unfavorability ” to unclutter up the determiners of Ukrainian Bankss ‘ profitableness. There exist a few motives for making this:

1 ) of class there exist some theoretical and empirical issues which explain factors act uponing net incomes of UB ( loans given, investing etc. ) , but there is no information about the grade of influence of any of them on net incomes ; NBU calculates fiscal activities of UB on a regular footing, but I have ne’er met any econometric theoretical account for Ukraine which could somehow describe state of affairs presents in footings of UB ‘s worsening profitableness. The inquiry is of involvement: What influences the public presentation of UB?

2 ) good research and right theoretical account constitution is a good add-on to already obtained cognition of all degree directors and proprietors engaged in banking concern for even better pull offing establishments they work for ; I hope paper could besides hold some policy deductions which could be utile for NBU authorization ;

3 ) at last, Ukrainian information let me to make that, but about that later ;

I ‘m non the first who is traveling to look at this issue, but I am the first who does for Ukraine.

Literature reappraisal:

Exist rather important figure of surveies across different states where writers try to find what influences Bankss ‘ profitableness. I ‘ll concentrate on chief end of the documents reviewed, method used and estimation consequence. Researchs in the given subject ( determiners of bank profitableness ) may be grouped in two classs: those who did across state research and those working with one state. For illustration, Dr Samy Ben Naceur & A ; Dr Mohamed Goaied ( 2003 ) ( hypertext transfer protocol: //papers.ssrn.com/sol3/papers.cfm? abstract_id=856365 ) studied “ the impact of Bankss ‘ features, fiscal construction and macroeconomic indexs on Bankss ‘ net involvement borders and profitableness in the Tunisian banking industry for the 1980-2000 period. They used fixed consequence theoretical account, random consequence theoretical account and random coefficient theoretical account. Such dependent variables were chosen: net involvement border, return on assets. Major findings are:

1 ) cyberspace profitableness and bank involvement borders are affected by single bank features ( capital size, ratio of Bankss ‘ loans to entire assets ) .

2 ) growing rates of GDP/capita have no consequence on profitableness, nevertheless rising prices impacts positively loans ‘ spread.

3 ) stock market positively influences bank ‘s profitableness therefore corroborating complementarity of banking system growing and stock market growing.

Major portion of researches divide their independent variables in two groups: 1 ) bank specific variables ( internal features ) ; 2 ) macroeconomic and industry specific variables ( external features ) ;

Panayiotis P. Athanasoglou et Al. ( 2005 ) used GMM to gauge panel informations of Greek Bankss. They chose ROAA ( return on mean assets ) , ROAE ( return on mean equity ) as dependent variables. Writers consider these variables as good indexs of profitableness since ROAA represents director ‘s ability of gaining net incomes given bing assets, although research workers agree that ROAA may be biased due to activities non included in balance sheet. They consider ROAE as secondary ( because sometimes it is set by ordinance ) best variable because it measures fiscal purchase of bank Major findings: labour productiveness ( existent gross gross over the entire figure of employees ) positively and significantly influences net incomes, rising prices besides positively influences net incomes, writers link it to the ability of Greek bankers right forecast future rising prices rate to put an involvement rate for pull outing maximal net incomes.

Uhomoibhi Toni Aburime ( 2009 ) investigates ( by simple OLS ) and studies obvious findings such as Bankss demands to be scrupulous about giving loans and making investing portfolios, associations generate higher net incomes etc.

Fotios Pasiouras, Kyriaki Kosmidou ( 2007 ) investigated profitableness of EU states, used ROAA as a dependent variable ; method of appraisal – fixed consequence. Basically writers considered random and fixed effects, but chosen latter based on assortment of trials. Research workers distinguished Bankss in footings of ownership ( foreign vs domestic ) and found that for all Bankss it is of import to command for disbursals which straight influence net incomes ; they report that degree of liquid assets held by bank negatively influences profitableness of domestic Bankss, the opposite state of affairs with foreign Bankss. Writers report an interesting issue that size of bank ( relationship of assets of given bank to entire assets of Bankss in state ) has negative mark therefore corroborating theory of “ economic system of scale ” of little Bankss or “ diseconomies of graduated table ” for bigger Bankss.

There were several surveies of EERC alumnas related to my research, among them Nikolsko-Rzhevskyy ( 2003 ) who found that PROFITS/CAPITAL and CAPITAL/NET_ASSETS ratios have negative consequence on the chance of bank failure ( logit theoretical account was used ) , that is higher net incomes bank earns – less chance of going insolvent. By Kateryna Turchynska ( 2005 ) “ there is negative dependance between the fact of the amalgamation and efficiency of the bank. I ‘m traveling to mensurate bank efficiency in footings of net incomes – higher profitableness means less chance of bank being merged or its failure.

Andreas Dietrich and Gabrielle Wanzenried ( 2009 ) have besides been covering with the same dependent variables ( ROAA, ROAE ) . Furthermore they report similar findings to earlier discussed writers. But they mark out the following issue: “ the GDP growing rate, which affects the bank profitableness positively ; the effectual revenue enhancement rate, which has a significantly negative impact on profitableness ; and the market concentration rate, which besides has a significantly negative impact on bank profitableness ( Dietrich and Wanzenried ( 2009 ) ) ” . Therefore, most research workers used ROAA, ROAE as a best step of profitableness, so I ‘ll follow them besides but with some fluctuations discussed in methodological analysis subdivision.

Data description.

In order to supply new grounds for Ukrainian economic system I ‘m traveling to utilize informations from official NBU web site available here: hypertext transfer protocol: //www.bank.gov.ua/Bank_supervision/index.htm. Data contain information about UB ‘s assets, net incomes, capital. Period chosen for research: 2002-2009. By latter address quarterly informations for all Bankss is available ; on norm there are 150 Bankss each twelvemonth report their activity, so, given I choose to utilize one-year informations there will be at least 150*9=1 350 observations available.

For dummy variables I ‘m traveling to utilize in arrested development equation ( day of the month of bank foundation ) major portion of informations are available here: hypertext transfer protocol: //www.aub.com.ua/ . For macroeconomic variables the best site is: hypertext transfer protocol: //ukrstat.gov.ua.

Methodology:

For my research I ‘m traveling to largely follow Dietrich and Wanzenried ( 2009 ) since this is one of most recent surveies and writers ‘ debate makes sense.

Dependent variables

Two steps of public presentation are used in the survey: ROAA ( return on mean assets ) , ROAE ( return on mean equity ) .

To do my farther research consistent with already bing surveies I ‘m traveling to utilize ROAA as a chief step of profitableness. It is calculated as: Net PROFITS/AVERAGE ASSETS expressed as a per centum. AVERAGE ASSETS of two back-to-back old ages is calculated in order to capture the difference in assets in financial twelvemonth. As some internet resources ( hypertext transfer protocol: //www.mysmp.com/fundamental-analysis/return-on-assets.html ) and research workers ( Guli ( 2001 ) ) point out: “ Return on assets is a cardinal profitableness ratio which measures the sum of net income made per dollar of assets that they own.

Harmonizing to Dietrich and Wanzenrie ( 2009 ) who say that ROAE is non ever consistent with ROAA because “ Bankss with a lower purchase ratio ( higher equity ) normally report a higher ROAA but a lower ROAE. However, this index of profitableness is widely used in literature, so I ‘m traveling to utilize ROAE as 2nd best step of profitableness.

Independent variables.