THE MASTER S RESEARCH PAPER BANK PROFITS MANAGEMENT BASED

THE MASTER'S RESEARCH PAPER: “BANK PROFITS MANAGEMENT” (BASED ON THE JOINT STOCK COMPANY “ОТP BANK”) Naumenko T. B-09 Scientific supervisor: S. A. Kuznetsova, Doctor of Economics, Full Professor, Head of the International Finance and Banking Department

СONTENT : Chapter 1 Theoretical basis of yield management of the bank. 1. 1. The essence of managing the Bank's profitability 1. 2. Methodological evaluation instruments bank profitability: Ukrainian and international experience 1. 3. Strategies for bank profitability 1. 4. Evaluation of the profitability of banks of Ukraine Chapter 2 Analysis of yield management of JSC "OTP Bank" 2. 1. Organizational and economic characteristics of JSC "OTP Bank" 2. 2. Assessment of the profitability of JSC "OTP Bank" 2. 3. Evaluation of the effectiveness of management profitability JSC "OTP Bank" Chapter 3 Ways to improve yield management of JSC "OTP Bank « 3. 1. Organisational measures to improve the profitability of JSC "OTP Bank" 3. 2. Directions improve profitability analysis of JSC "OTP Bank" 3. 3. Model Application Dupont (Du Pont) in JSC "OTP Bank « Chapter 4 Health and safety in emergency situations JSC "OTP Bank" 4. 1. Public works in JSC "OTP Bank" 4. 2. Security in emergencies in JSC "OTP Bank 2

purpose of the research is to develop measures to improve JSC "OTP Bank" profits management. Tasks: The - to examine the nature of bank profits management; - to consider tools of bank profits management; - to conduct a critical review of bank profits management; - to analyze the performance of the bank during the period of 20092013; - to develop ways of bank profits management improving. The Object of the investigation is the bank profits. The Subject of the investigation is the bank profits management. The Basis of investigation is JSC "OTP Bank" 3

The profitability of the bank is the relative value of enterprise management in terms of profit. 4

The main profitability indicators 1. Return on assets(ROA) 2. Return on equity(ROE) 3. Spread 4. Interest margin (profit) 5. Net interest margin 6. Non-interest margin 7. Net non-interest margin 8. Net profit by 1 shares 9. Net operating margin 10. Profit before tax 5

Return on assets Return on equity after tax Use of assets * Margin of profit Return on equity before tax * tax rate Net margin / equity quota Average Assets / Total Revenue Net income / total income Interest income on loans + Risk Margin +Gross Profit Margin Investments interest + payment services + other incomes Margin Gross Income - Gross margin requirements Cash and necessary payments + Gross margin percent + commission margin + trading margin + Personnel costs margin + material costs margin ekstra margin investment (taxable and taxfree) + loans (commercial, consumer, farmer, mortgages and other loans) + other assets Figure 1. European model of calculation and analysis of bank profits Total revenue - interest expense (deposits, non deposit) - Operating and other expenses (salary, relocation costs, provisions for losses on loans and other expenses) - income taxes Figure 2. American model of calculation and analysis of bank profits 6

Bank profits management strategies Aggressive strategy Defensive strategy maximization of service by stimulating the expansion of branch network in order to increase profit entity cost control with the purpose of further increase of the bank's profit as the difference between the absolute value of revenues and expenses. This strategy is effective in the long term Diversification strategy combination of aggressive and defensive strategy, so called "medium", which allows to correlate advantages and disadvantages of both options of bank profits management strategies Figure 3. Types of bank profits management strategies 7

Table 1 Indicators of Ukrainian banks profits for the period of 2008 -2013, %. № Indicator 01. 2008 01. 2009 01. 2010 01. 2011 01. 2012 01. 2013 1 Return on assets 1, 50 1, 03 -4, 38 -1, 45 -0, 76 0, 21 2 Return on Equity 12, 67 8, 51 -32, 52 -10, 19 -5, 27 1, 44 3 Net interest margin 5, 03 5, 30 6, 21 5, 79 5, 32 4, 08 4 Net spread 5, 31 5, 18 5, 29 4, 84 4, 51 3, 49 8

Figure 4. Results of JSC "OTP Bank" for 2011 Figure 5. Results of JSC "OTP Bank" for 2012 9

Table 2 Indicators of JSC "OTP Bank“ profits, % Indicator 2010 2011 2012 Changes (+; -) Return on Assets (ROA) 0, 25 0, 15 0, 89 0, 64 Return on equity (ROE) 12, 55 12, 09 6, 35 -6, 20 Interest margin (interest income) 2005390 1830174 1634257 -371133 Non-interest margin (noninterest income) 255241 313223 449484 194243 Net interest margin 8, 13 8, 12 7, 92 -0, 21 Net spread (spread profit) SPREAD 0, 19 0, 17 0, 20 0, 01 10

Figure 6 Return on assets of JSC "OTP Bank" Figure 7 Return on Equity of JSC "OTP Bank" 11

1. Calculation of the actual values of the coefficients of return based on the balance sheet and other forms of annual and quarterly reports; 2. Comparative factors evaluation with their levels in the previous years and quarters; 3. Identifying the main trends in the dynamics of the coefficients (increase or decrease); 4. Identifying factors that have influenced the established tendencies in factors; 5. Evaluation of factors from the standpoint of balance sheet liquidity and banking risks; 6. Recommendations to improve the bank profits or ensure its stability in the new year. Figure 8. Stages analysis of JSC "OTP Bank" profits Profit management Income and expenses management Analysis of income Analysis of costs Assets managem ent Profitability management of individual units functioning Money back management Liability managem ent Pricing Policy Liabilities policy management Turnover of resources Analysis of financial ratios Development of business plans Politics of effect (Marketing) Figure 9. JSC "OTP Bank“ returns management process 12

Increased profitability of the bank Planning and estimating of income yield Developing a plan of emergency funding Improving of marketing policy Determination of the usage of all possible sources of funding Improvement of interest policy Reducing costs, to create banking services Improving risk management Allocation of economic capital at risks Ensuring the growth of non-interest income The increase in bank profits 13 Figure 10. Scheme of common organizational measures to improve JSC "OTP Bank“ profits

The Du. Pont Model Two-factor model ROE = Profit / (Capital Bank) = ROA * LR = profit / (assets) * (assets) / (Capital Bank) Three-factor model ROE = Profit / (Capital Bank) =PM*ROA*LR = profit / income * income / assets * (assets) / (Capital Bank) Figure 11. Components of the Du. Pont model 14

Table 3 Factor ROE of JSC "OTP Bank" by the Du. Pont model Factor Value Two-factor model Net income assets 2% Multiplier of capital 98% Three-factor model Profit margin (total return) 0% Return on (reversibility) assets 11% Multiplier of capital 89% 15

Thank you for your attention! 16