Ekonomiczne nauki research of competitive advantages of banks in ukraine for the formation of deposit strategy in crisis and post-crisis period icon

Ekonomiczne nauki research of competitive advantages of banks in ukraine for the formation of deposit strategy in crisis and post-crisis period




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Ekonomiczne nauki

RESEARCH OF COMPETITIVE ADVANTAGES OF BANKS IN UKRAINE FOR THE FORMATION OF DEPOSIT STRATEGY IN CRISIS AND POST-CRISIS PERIOD


Nataliya Evchenko, Ph.D., Associate Professor of the Ukrainian Academy of Banking of National Bank of Ukraine (Ukraine)

Olena Krukhmal, Ph.D., Associate Professor of the Ukrainian Academy of Banking of National Bank of Ukraine (Ukraine)


Annotation. In article are considered evaluation methods of depositary policy of banks in terms of its competitiveness during the financial crisis and post-crisis period. The reasons of deposit outflow of resources from the banking system of Ukraine are investigated. Proved scientific and practical recommendations of the formation of the deposit bank's strategy and its basic components that will provide a competitive market position of deposit services to attract the required volume of deposit resources.

Keywords: depositary policy, evaluation of depositary policy, deposit strategy of the bank, management techniques of deposit resources, marketing instruments of deposit strategy, brand of bank, image - advertising of bank.


I. Introduction. Essential precondition for the stable positions of the bank in competition for the depositor and successful realization of the purposes of the deposit policy is to research the spectrum this kind of services offers other appropriate banking institutions within the region or target group of clients and developing relevant strategy in the market. Taking into account escalation of interbank competition in terms of deposit outflow especially important are the issues of formation of such a strategy in the area of deposit services that can be able to turn a simple depositor to a reliable partner of the bank and to provide them with strong and a long lasting business relationships.

The development the deposit policy and its importance in ensuring the stability of the banking institution devoted a lot of scientific papers. The circle of the investigated problems covering the themes of principles of formation the deposit policy [1], the use of financial models for research of deposit banks strategies [2].

The works several scientists, including A. Mamontov [3] A. Zaitsev [4] N. Drebot, O. Galko [5], M. Vitvitsky [6] devoted to the developing measures for stimulating the inflow of money to deposit accounts of banks.

However, it should be mentioned that many scientists focus on developing measures for increase of deposit resources, overlooking in this case research the causes of outflow of money and restore the trust of depositors in banking sector.

^ II. Problem statement. This article is aimed reasoning the scientific approaches to optimization of bank deposit policy, which will allow keep the deposits and increase the investment during crisis and post-crisis period based on the search of the causes of outflow of money and development marketing strategy of bank's behavior at the appropriate market segment.

III. Results. The factors of internal and external environment are influencing to the process of involving of deposit funds, should be included in developing of bank deposit policy and its implementation. At the same time management of the deposit base of the bank is based on regulation supply and demand for deposit services and the development of deposit strategy of the bank. Under the bank deposit strategy we mean a set techniques and instruments for the formation of the deposit portfolio of the Bank, as well as complex of measures for strengthening its competitive positions on the market of deposit services to provide the required volume of deposit resources.

Effectively organized deposit policy may become determinant of the reliability of the Bank and its financial stability, a precondition for achievement indexes of solvency and liquidity. Evaluating the effectiveness of depositary policy propose to carry out by using of situational analysis, during which are detected the dynamic characteristics of market segments of deposit services and degree of their coverage , and expert method by the following criteria: reliability and image of bank, the volume of bank deposits range of services, technological support of deposit transactions, service conditions, the intensity and quality of the advertising campaign, the level of staff development. Based on the results of the analysis of deposit policy, management of the bank can choose one of the strategies of behavior at each of the allocated market segments.

In period of economic crisis the growth rate of deposits is much decreased. According to the Association of Ukrainian Banks [7], in the first half of 2009 the outflow from deposit accounts has reached 61 bln. uah. The most deposits in the first half of 2009 had lost: Privatbank – 6,7 bln. uah., OTP Bank – 5,2 bln. uah., Alfa-Bank – 4,1 bln. uah. (Table 1). The main reason for the outflow of deposit investments – public does not trust the banking sector.


Table 1 – The deposits outflow rating of banks of Ukraine during the period from 1/1/09 to 1/10/09*



Name of bank

Time deposits, mln. uah.

Outflow of deposits

After half. year

For 3 quarters

1/1/09

1/7/09

1/10/09

mln. uah.

%

mln. uah.

%

Total of banking system of Ukraine

312060

250415

256831

-61646

-20

-55229

-18

1

ALFA - Bank

16629

12480

11473

-4149

-25

-5156

-31

2

OTP Bank

25442

20215

20462

-5227

-21

-4980

-20

3

PrivatBank

42795

36067

37825

-6728

-16

-4970

-12

4

UkrSibbank

11940

8498

8271

-3442

-29

-3669

-31

5

Raiffeisen Bank Aval

19135

16794

15642

-2341

-12

-3493

-18

6

Ukrgasbank

6418

4004

3149

-2414

-38

-3269

-51

7

Rodovid Bank

5243

2792

2216

-2451

-47

-3027

-58

8

Finance and Credit Bank

8607

5866

5590

-2741

-32

-3017

-35

9

Bank Nadra

11486

9971

9459

-1515

-13

-2027

-18

10

First Ukrainian International Bank

5787

4190

3923

-1597

-28

-1864

-32

11

BrokBusinessBank

6698

4222

4957

-2476

-37

-1741

-26

12

Swedbank

4084

2825

2395

-1259

-31

-1690

-41

13

Vab Bank

3640

2448

2112

-1192

-33

-1528

-42

14

Bank Kiev

2579

1664

1228

-915

-35

-1351

-52

15

Imexbank

2742

1723

1420

-1019

-37

-1321

-48

16

Kreditprombank

6939

5569

5731

-1371

-20

-1208

-17

17

Ukrprombank

8928

7937

7737

-991

-11

-1192

-13

18

Vtb Bank

4019

2746

2868

-1273

-32

-1151

-29

19

Ukrsotsbank

7558

5850

6472

-1709

-23

-1086

-14

20

Swedbankinvest

1812

984

834

-828

-46

-979

-54

21

Industrialbank

2394

1578

1532

-815

-34

-861

-36

22

Bank Renaissance Capital

851

365

201

-486

-57

-650

-76

23

Pivdennyi Bank

5018

4224

4421

-793

-16

-597

-12

24

Platinum Bank

721

218

145

-503

-70

-576

-80

25

Sberbank Of Russia

1663

1319

1090

-344

-21

-573

-34

26

Bank «Kyivska Rus»

2218

1765

1668

-452

-20

-550

-25

27

Megabank

1583

1092

1086

-491

-31

-496

-31

28

Big Energi

834

389

381

-445

-53

-453

-54

29

Procreditbank

2561

2074

2134

-487

-19

-426

-17

30

Trans Bank

722

459

336

-263

-36

-385

-53

* Compiled according to the Association of Ukrainian Banks [7]


Analysis of deposits outflow the largest banks in Ukraine indicates that the banks with significant foreign capital share had outflow of deposit resources which generally not exceed 10%, while the inflow of retail deposits in these banks observed already in the second quarter in 2009 (Fig. 1).




Fig. 1 – The volume of outflow of retail deposits in the largest banks in Ukraine during the period from 01/1/2009 to 01/1/2011.

During the third quarter of 2009, some banks (Privatbank, Ukrsibbank, Brokbusinessbank, Ukrsotsbank, VTB Bank) managed to stop the outflow and restore the deposit base. In most of banks the deposit outflow of resources continues.

However, several banks succeeded not just retained but also increase its deposit portfolio (Table 2).


Table 2 – The deposits inflow rating of banks of Ukraine during the period from 1/1/09 to 1/10/09 *



Name of bank

The term deposits, mln. uah.

Inflow of deposits

Over half. year

For 3 quarters

1/01/09

1/07/09

1/10/09

mln. uah.

%

mln. uah.

%

1

Oschadbank

7555

8627

14502

1072

14

6947

92

2

Bank «Kliringoviy Dim»

833

1832

1660

998

120

827

99

3

Universalbank

1712

2108

2446

395

23

734

43

4

Bank Credit Agricole Kiev

983

775

1345

-207

-21

362

37

5

National Standard

496

665

854

169

34

358

72

6

Zlatobank

536

716

886

180

34

350

65

7

Pivdencombank

360

574

685

214

59

324

90

8

Bank People’s Capital

20

325

283

305

1537

263

1324

9

Financial Initiative

488

729

746

241

49

258

53

10

UkrBusinessBank

699

852

951

153

22

252

36

11

Erstebank

734

852

952

118

16

218

30

12

Dongorbank

3284

3342

3490

58

2

206

6

13

Delta Bank

2959

2490

3134

-469

-16

175

6

14

Pravex Bank

2911

2681

3074

-230

8

163

6

15

Finbank

578

622

723

44

8

145

25

*Compiled according to the Association of Ukrainian Banks [8]


Thus, in crisis conditions an important factor that influences volume of deposit resources is the public trust. The most effective way to return trust of the customers of the bank is the formation of positive public opinion about its activity. Therefore, the primary task of the deposit strategy is to support its image as a stable and reliable bank. For solving this task first of all responsible service of PR and marketing. Also equally important is to extend the range of deposit products offered to depositors, and the introduction of loyalty programs to retain customers and attract new depositors.


So, in a the economic crisis the bank deposit strategy for increasing the deposit portfolio should be directed to:

1) attracting of new clients (strategy of development and strategy of diversification);

2) retention of existing clients (penetration strategy);

3) implementation of new directions in the development of products and services (innovative strategy).

While developing the measures for each of the above strategies, the bank is necessary to consider changes that have occurred in behavior of consumers of deposit services because of banking crisis. These changes first of all influenced the selection of the term of deposits, currency of deposits, type of products and allocation strategies of clients (Table 3).


Deposit bank’s strategy necessarily have to include such marketing instruments as advertisement, public relations (PR) and informational support.

The first step toward support of reputation of the bank are such a well known marketing instrument as advertising. In a post-crisis period banks will need to focus on the image advertising.

Image advertising is the creation of a favorable image of the bank and its services. It is directed does not only the potential clients, but also a wider audience. Its main task is to create a positive image of the bank for the consumer . The most effective for this kind of advertising are the following advertising instruments: advertising big boards, light box, advertising in newspapers and magazines, participation in various charitable programs, commercials.

In developing the advertising is necessary to focus of public attention on the belonging of bank to the international banking group. The analysis of the 10 most stable banks in Ukraine, which was compiled by opinion research authoritative investment companies, including Dragon Capital, Astrum Investment Management, Bonum Group, Concorde Capital, Pheonix Capital, Foyil, «Art Capital», «Quinto», showed that the almost all of them are banks with foreign capital. For the clients this is evidence of support of the parent company and of the foreign experience in providing financial services. Is also does not less effective use in advertising references to the experience of bank work at the market of Ukraine, ratings of international organizations, bank awards.

Besides the advertising banks need to demonstrate their work. This task can be implemented by active work of PR-service of the bank in order to achieve a loyal relation to bank activity. In contrast to advertising and promotion of products of the bank, PR actions have a long-term effect and directed first of all not on the potential clients, but to the environment and public opinion.

Activity of PR is to organize the charity actions, sponsorship, press conferences, presentations and the continuous updating of web-sites of bank and close cooperation with the media. An important function of the PR also is to explain the social role of the banking business. Relations with the public, depending on the subjects of influence, can be constructed on the following directions:

- organizing relations with the media;

- relationships with target audiences;

- relations with the government and administration.

However, in a competitive environment for each depositor, except the above mentioned actions, no less important are the measures directed to retention of the client who has already come to the bank. For this bank should to diversificate the deposit products, to develop a loyalty programs for both new and regular clients to provide complete customer service.

The effectiveness of the above marketing instruments confirmed of the renewal of deposit base of banks of Ukraine.

In the second half of 2009 there has been a growth of deposits. In 2010, the banking system exceeded the level of of deposit base before the crisis period. Retail deposits increased in 2010 on the 28.5%. Deposits in national currency grown more prompt rates than the deposits in foreign currency – 41,6% and 17,4% respectively (Fig. 2).



Fig. 2 – Dynamics of individual deposits in national and foreign currencies during the period from 1/1/09 to 1/4/12*

*Compiled according to the National Bank of Ukraine [9]

Structure of Individual deposit has improved – the share of long-term deposits in the overall of deposits has increased from 27% at the end of 2009 to 39% at the end of 2010. The tendency of increasing of deposits in UAH at the beginning of 2011 slowed down. It is promoted by high rates of inflation in the country that makes people the large part of their income to spend on daily needs.

However, the amount of deposits in UAH in April of 2011 increases and such growth experts associated with increasing of public trust in the national currency and the domestic banking system. Deposits in foreign currency increased slightly a slower pace.

This way, on the background of growing trust in the banking system, lack of practical alternative to bank deposit and the growing to devaluation moods in society the volume of deposits in foreign currency will continue to grow, however will not exceed the share of deposits in national currency.

^ IV. Conclusions. Thus, the financial crisis and post-crisis period, the main components of the deposit bank's strategy, which will provide to it a competitive advantage should be the strategy of development and diversification, the strategy of penetration and the innovation strategy.

At the same time the main task of deposit strategy is to return the trust of depositors, which will help preserve and increase deposits resources of the bank. Achieving this aim could be provided by using non-price methods of the deposit resources management using the marketing instruments.


References:

  1. Cherep A. The deposit policy and its role in providing the stability of the commercial bank [Text] / A. Cherep, T. Dvugyn // Economics. – 2009. – № 4. – P. 20-26.

  2. Danilov T. Application of financial modeling in research of deposit and credit strategies of commercial banks [Text] / T. Danilov, A. Reshetov // Finance and credit. – 2008. – № 32. – P. 4-30.

  3. Mamontov A. Loyalty of clients as a key to increase the deposit portfolio [Text] / A. Mamontov // Banking practice abroad. – 2007. – № 11. – P. 30-34.

  4. Zaitsev O. «Fresh Innovation» for growth of deposits [Text] / O. Zaitsev // Banking practice abroad. – 2008. – № 12. – P. 76-80.

  5. Vitvitsky M. Structured deposits [Text] / M. Vitvitsky / Banking Management. – 2009. – № 3. – P. 43-47.

  6. Drebot N. The strategy of banking institutions in the market of deposit services [Text] / N. Drebot, O. Galko // Regional Economics. – 2008. – № 4. – P. 125-132.

  7. Rating of banks that have lost the largest of deposits [Electronic resource] / Ekonomichna pravda: electronic edition. – Access mode: http://www.epravda.com.ua/publications/49f8894977fa0. – Title from screen.

  8. A site of Association of the Ukrainian banks [Electronic resource] / Analysis. Indicators of bank’s activity. – Access mode: http://aub.org.ua/index.php?option=com_arhive_docs&show=2009&Itemid=112. – Title from screen.

  9. A site of National Bank of Ukraine [Electronic resource] / Bank supervision. Data from financial reports of Ukrainian banks. – Access mode: http://www.bank.gov.ua/control/en/publish/category?cat_id=73845. – Title from screen.

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