METHODS OF SOLVENCY ESTIMATION OF ENTERPRISE BY A BANK
Gladka A.O.
Scientific advisor: Ph.D. Kuz'minchuk N.V.
Kharkiv Institute of Banking of the University of Banking of the
National Bank of Ukraine
One of the
negative consequences of the financial crisis is the financial conditions and
solvency worsening of enterprises. This problem, in its turn, is connected with
a sharp decline of production in the real sector of the economy, but an
inappropriate policy of many banks that emerged in the conditions of high
inflation and whose main source of the profit was high interest rates for
credits had a substantial influence as well. An unfavorable situation with timely
payback of credits is largely conditioned not only by economic instability in
the country but also by imperfection of methodical approaches to the estimation
of solvency of borrowers, that would meet the modern conditions of banks. Therefore, the application of appropriate,
economically-grounded estimation of their solvency is of special urgency. The
aim of the paper is the analysis of estimation methods of solvency of an enterprise.
The review of research [3,4,6] shows the availability of a number of estimation
methods of solvency of borrowers. However, today no generally-accepted and scientifically-grounded
method has not developed yet. It should be noted that the worsening of the
quality of a credit portfolio of a bank can become the result of an unqualified
and untrue estimation of solvency of borrowers, which in its turn, requires
extra reserve. One
of the reliable methods of the problem solution is the development and
application of the well-founded method which will allow a bank to really estimate
the solvency of borrowers. Moreover, there is no a unique well-founded
definition of the concept “solvency”, and this fact could be affirmed by various
interpretations of the concept “solvency” that are given below:
1) the solvency of a borrower is his ability to
fully and in time pay back the debt
obligations [6];
2) the
solvency is the system of terms that determine the ability of an enterprise to attract loan capital and to return it in a full
volume at a fixed date [2];
3) the solvency
is the availability of conditions of the borrower, possibilities to get a
credit and pay it back in time [7];
4) the
solvency is the ability of a borrower
in full volume and at a certain date to pay back his debt obligations [1];
5) the solvency is the ability of a company
or an individual to attract loan capital and in the future properly to serve
the debt [6].
From the definitions of the term «solvency»
listed above one can conclude that, firstly, their authors understand the term “a
subject of credit relations” in different ways. In the first, third and fourth
definitions the term is not specified, but given in a general way “a borrower”,
and in the second and the fifth ones it is specified, that it is an enterprise,
an individual, a company. A substantial difference is the definition of the
condition of loan redemption. In the fourth definition it is given more
precisely. In my opinion, solvency is supposed to mean the availability of the
system of pre-conditions for getting a credit, and the ability of a borrower to
pay back the debt in time.
When determined
with the essence of the concept «solvency», one should draw attention to the
basic methods of solvency estimation of an enterprise (see. the table.)
Methods of solvency
estimation of an enterprise
A method
|
Features of a
method
|
A solvency estimation
of a borrower on the basis of the system of financial coefficients [3, 4]
|
In accordance
with the requirements of the NBU 4 groups of financial coefficients from the
data of accountability of an enterprise:
1) liquidity ratios; 2) coefficients of business activity; 3) coefficients
of financial independence; 4) coefficients of profitability.
|
A solvency
estimation of a borrower by the calculation of financial coefficients [3, 4]
|
This method
orients a bank to examine not the process of an activity execution, but the
financial result, because the real payback of credit is important in the end.
|
Prognosis
methods of solvency estimation [3, 6]
|
It is oriented
to the future analysis of the condition of a borrower. There are three main methods of
prognostication:
·
a calculation
of the index of solvency;
·
the use of the system of the formalized and
unformalized criteria;
·
prognostication
of indexes of solvency.
|
|
A solvency
estimation by the analysis of cash flow [4,6] |
Such
method could be applied through the analysis cash flow of a client, namely
through calculation of net balance of its different incomings and expenses
for a certain period. |
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