“Assessment of financial and economic security of Ukraine in conditions of foreign banking development” Ulyana Vladychyn https://orcid.org/0000-0002-6916-6688 AUTHORS Iryna Skomorovych https://orcid.org/0000-0002-8574-6770 Sophia Lobozynska https://orcid.org/0000-0001-5483-6864 Ulyana Vladychyn, Iryna Skomorovych and Sophia Lobozynska (2018). ARTICLE INFO Assessment of financial and economic security of Ukraine in conditions of foreign banking development. Banks and Bank Systems, 13(3), 151-173. doi:10.21511/bbs.13(3).2018.15 DOI http://dx.doi.org/10.21511/bbs.13(3).2018.15 RELEASED ON Monday, 08 October 2018 RECEIVED ON Wednesday, 29 August 2018 ACCEPTED ON Tuesday, 02 October 2018 LICENSE This work is licensed under a Creative Commons Attribution 4.0 International License JOURNAL "Banks and Bank Systems" ISSN PRINT 1816-7403 ISSN ONLINE 1991-7074 PUBLISHER LLC “Consulting Publishing Company “Business Perspectives” FOUNDER LLC “Consulting Publishing Company “Business Perspectives” NUMBER OF REFERENCES NUMBER OF FIGURES NUMBER OF TABLES 34 4 10 © The author(s) 2021. This publication is an open access article. businessperspectives.org Banks and Bank Systems, Volume 13, Issue 3, 2018 Ulyana Vladychyn (Ukraine), Iryna Skomorovych (Ukraine), Sophia Lobozynska (Ukraine) Assessment of financial BUSINESS PERSPECTIVES and economic security of Ukraine in conditions of foreign banking development LLC “СPС “Business Perspectives” Hryhorii Skovoroda lane, 10, Sumy, 40022, Ukraine Abstract www.businessperspectives.org The article assesses the influence of foreign banks on the financial and economic secu- rity of Ukraine. A scientific and methodological approach to the determination of the influence of foreign banks on the financial and economic security of the state using the correlation and regression analysis as well as scenario approach is offered. Such approach reflects mutual links between the indicators of foreign banking and the main indicators of financial and economic security of Ukraine. On the basis of analysis of foreign banking development, the indicators of financial and economic security of Ukraine have been forecasted. Positive and negative consequences of such influence in conditions of cyclic and crisis development of the national economy and bank system have been substantiated. Received on: 29th of August, 2018 Accepted on: 2nd of October, 2018 Keywords foreign banking, bank with foreign capital, financial and economic security of the state, bank system © Ulyana Vladychyn, Iryna Skomorovych, Sophia Lobozynska, 2018 JEL Classification G17, G21, O16 Ulyana Vladychyn, Doctor of Economics, Associate Professor, Department of Banking and INTRODUCTION Insurance Business, Ivan Franko National University of Lviv, Ministry Foreign bank capital influences the development of the country’s of Education and Science of Ukraine, Ukraine. economy and its financial and economic security. Development of an efficient system of financial and economic security of Ukraine Iryna Skomorovych, Doctor of Economics, Associate Professor, through engagement of foreign investors constitutes one of the key as- Department of Banking and Insurance Business, Ivan Franko pects of state regulation. It becomes important to identify the changes National University of Lviv, Ministry brought by foreign banks capital in the conditions of cyclic economic of Education and Science of Ukraine, Ukraine. development. Sophia Lobozynska, Doctor of Economics, Professor, Department of Foreign banking is defined as a special type of international busi- Banking and Insurance Business, Ivan Franko National University of Lviv, ness activity, consisting in the organizing and functioning of banks Ministry of Education and Science of which are established fully or partially out of foreign capital, which Ukraine, Ukraine. perform their functions in the territory of the recipient country to arrange client bank servicing for profit gaining purposes, thus con- tributing to bank system development and satisfaction of economy’s needs. Foreign banking is related to the processes of foreign invest- ment into the internal bank system via establishing of banks with foreign capital that contributes to its development and establishment This is an Open Access article, of competitive environment. On the other hand, activity of foreign distributed under the terms of the banks in external markets may considerably affect the level of finan- Creative Commons Attribution 4.0 International license, which permits cial and economic security. unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly Therefore, the problem of determining quantitative and qualitative cited. characteristics of foreign banking in Ukraine is undoubtedly relevant. 151 Banks and Bank Systems, Volume 13, Issue 3, 2018 In order to assess the impact of foreign banking on Ukraine’s financial and economic security, the cor- relation and regression analysis, as well as scenario approach, have been used. This approach reflects the relations between foreign banking indicators and the core indicators of state’s financial and economic security (GDP, inflation rate, budget deficit, gross external debt, level of shadow economy, money supply, international central bank’s reserves, cost of credits, the share of non-performing loans to total loans, profitability of the bank system’s capital and assets). Such analysis allows to forecast the values of the core indicators of state’s financial and economic security, which are influenced by foreign banking de- velopment, as well as to substantiate positive and negative outcomes of such impact in the conditions of cyclic-and-crisis development of Ukraine’s economy and bank system. 1. LITERATURE REVIEW odologies. Thus, to determine relative efficiency of banks, Dolgikh (2013) applies nonparametric Analysis of scientific literature has shown that the technique of Data Envelopment Analysis (DEA) problem of influence of foreign capital on state’s -fi and assesses overall technical efficiency, pure nancial and economic security requires additional technical efficiency and scale efficiency of differ- research. Many scientists and bankers try to iden- ent groups of banks. Estimations have shown that tify advantages and disadvantages of foreign capital by their average overall technical efficiency for- involvement in the country’s bank system (Heyets, eign banks have exceeded the efficiency of other 2006; Kornyliuk, 2012; Bongini, 2017), show pros groups of banks insignificantly. Hirniak (2013) and cons of foreign banks’ activity (Chub, 2009; suggests applying the methodology of construct- Levin, 1996), as well as determine the efficiency of ing dynamic standard models that enables to get the functioning of the country’s bank system when one figure that characterizes the efficiency of bank foreign investors are engaged (Kolodiziev & Shvets, performance in a comprehensive way. And it is 2008; Nezhurin & Podchesova, 2013; Bruno, 2012). considered that within the analysis there is a need to identify not just efficiency of the performance Analysis of foreign studies concerning the efficien- of banks with foreign capital, but also to show cy of banks with foreign capital looks controversial. their role in the state’s economic development in While in some countries the efficiency of banking general as well as to identify their influence on the increased with appearance of foreign bank capi- country’s financial and economic security. tal (Czech Republic, Croatia, Slovenia), in others it did not undergo significant changes (Poland, The problems of financial and economic secu- Lithuania, Latvia, Hungary), or even led to the de- rity of banks, some regions of the country and terioration of the financial performance of banks the state in general have been covered rather ac- (Estonia, Bulgaria, Romania) (Kuznyetsova et al., tively over the recent years in the papers of both 2007; Yershov, 2005). Some scientists claim that Ukrainian and foreign scholars (Naaborg, 2016; banks with foreign capital are more efficient than Varnalii, 2011, 2018). Some studies of scholars re- state banks of countries and banks with private fer to financial and economic security of state at national capitals (Fernandez et al., 2010; Bonin et the macro-level, the methodologies of determin- al., 2004). Assessment of the efficiency of foreign ing the degree of the country’s economic security, bank performance in Poland, made by Havrylchuk evaluation of different components of economic (2006), testified to increased efficiency of activi- security (production, demographic, foreign eco- ty of only newly setup banks with foreign capital, nomic, energy, foodstuff, investment, financial while functioning Polish banks acquired by for- security, etc.) (Kharazishvili, 2014; Bogma, 2016; eign investors did not show any significant chang- Ivashko, 2015). es in their performance (Havrylchuk, 2006), or even, according to some estimates, showed some The study of methodological approaches to as- performance deterioration (Yershov, 2005). sessment of the degree of the country’s econom- ic security, conducted by Kharazishvili, deserves To assess the efficiency of foreign capital invest- attention. The author points out the drawbacks ment, the scientists suggest using different meth- and challenges related to integral evaluation of 152 Banks and Bank Systems, Volume 13, Issue 3, 2018 the degree of Ukraine’s economic security, stud- There are many reservations and ongoing discus- ies the procedure of indicator