Development of a methodology for assessing systemically important Ukrainian banks and a Z-score

The indicator-based method recommended by the Basel Committee is one of the most common approaches to identifying systemically important banks. National authorities often establish their own methodology by adding modern tools that, in their opinion, adequately capture systemic risk in their domestic economy. The paper shows that the updated methodology for assessing systemically important Ukrainian banks can be verified on publicly available data. The analysis confirms that the updated version of the National Bank’s assessment methodology is in line with those recommended by international banking institutions, but does not fully capture the current systemic risk factors. Systematization of literary and statistical sources indicates that one of the main sources of systemic risk in Ukraine is the establishment of a state monopoly in the banking market. Thus, the assessment methodology should be supplemented by instruments to evaluate the performance of the banking business. The indicator-based method and the minus one bank Z-score approach were tested to identify Ukrainian systemically important banks from 2010 to 2017.The loss of the leading role of PrivatBank in ensuring banking stability after the transition to state ownership since 2016, as well as the equalization of the systemic risk contribution of banks with state, foreign and domestic capital, was discovered. The study empirically confirms that Z-index, which combines the positive characteristics of the static asset return ratio and bankruptcy probability, can be used to determine the methodology as an indicator of the performance of systemically important banks, primarily state-owned banks.