A ROLE OF CAPITAL ADEQUACY OF BANKS IN STRENGTHENING BANKING SUPERVISION

Abstract

The rapid growth of the banking services market is revealing a wide range of banking options systems in Ukraine. Capital of the separate banking institution is one of the most important indicators of the stability and reliability of a banking sector. When assessing the strength of banks, one of a number of factors to be taken into account is capital adequacy. And modern domestic practice of evaluation and regulation of equity adequacy banks are primarily determined by the regulatory requirements for it. The article examines the tendencies of reforms of the Ukrainian banking market in accordance with international standards. The statistics of economic standards on the system of banks of Ukraine for 2016-2019 are presented. The higher the capital adequacy ratios a bank has, the greater the level of unexpected losses it can absorb before becoming insolvent. The riskier its loan portfolio, the more stockholders’ funds are required. It is found that the value of the regulatory capital adequacy ratio increases over the study period, and does not always go below the regulatory limit recommended by the regulator. The prospects of introduction of capital buffers are outlined. Banking regulators in most countries define and monitor capital adequacy to protect depositors, thereby maintaining confidence in the banking system. It is emphasized that under Basel III conditions, the level of Tier 1 capital has been expanded by capital buffers and this practice will be implemented by the National Bank of Ukraine from January 2020. The directions of preserving banking stability in Ukraine are identified, ways of increasing the capitalization of the banking sector are proposed. The main ones include: to conduct continuous analysis of banks’ compliance with risk legislation and risk management requirements using modern computer-based stress testing technologies; to create a rating system and improving the competitiveness of domestic banks in comparison with foreign ones; control of the spread of vulnerability within the financial system etc.