Assessing Bank Financial Security Level Using the Comprehensive Index Technology

Abstract

The paper is devoted to issues of assessment of the bank financial security level. The analysis of existing approaches to the solution of this problem has been carried out. The scientific-methodological approach based on the use of comprehensive index technology is proposed. The calculating algorithm is presented in the form of a four-step procedure, which contains the definition of the initial set of data, their normalization, the calculation of the comprehensive index of financial security and results interpretation. The identification of financial security levels and the boundaries of the corresponding comprehensive index is carried out on the basis of analysis of the objects' configuration in the two-scale space of partial composite indexes. It constructed by the division of the set of initial indicators using the its content characteristics. The grouping results are matched with similar results are obtained by cluster analysis and the method of the principal components. The article presents the practical implementation of the proposed calculation procedure. For this purpose, a training sample of banks and a set of initial indicators was formed. The obtained results allowed to determine the number of levels of financial security and their boundaries. The financial security levels established for the analyzed banks as a result of the calculations are conditional and determined by the sample.

Assessment of bank's financial security levels based on a comprehensive index using information technology

“…According to the results obtained in [16], to identify the boundaries of intervals for each financial security level we use the formula:…”

“…where l i is a right bound for i-th interval, i=1..k-1, k -number of intervals; α i+1minimal value of comprehensive index, which corresponds to (i+1)-th financial security level; β i -maximal value of comprehensive index, which corresponds to i-th financial security level. Paper [16] proposed the following boundaries for levels:…”

“…The basis of the proposed approach is the technology of comprehensive index assessment. The main idea underlying the approach, that is presented in paper [16], is that for determining the classification of the object under study, they are pictured in some multidimensional space of partial composite indexes, calculated by the subset of the aggregate of initial indicators and reflect a certain characteristic of the bank's activities. The number of such composite indexes is determined based on features of the set of initial bank indicators.…”

Financial Security in the Context of Economics Welfare

“…An analysis of the scientific literature reveals, that some authors (Hryhoruk et al, 2019;Khrushch et al, 2019;Zaichko, 2020) links financial security to threats and possible consequences. Other authors (Ahmad & Sabri, 2015;Davydenko, 2015) are of the opinion that only the development of certain preventive measures can ensure financial security and thus guarantee economics welfare.…”

“…Threats can also be both real and implicit. Therefore, Khrushch et al (2019) noted that financial security is part of banks' economic security, ensuring an adequate level of stability of the financial position, guaranteeing the protection of financial interests in relation to the implementation of development strategies and the objective of achieving competitive positions against external and internal threats.…”