“Monitoring the financial security of the Ukrainian banking sector in the context of system-deterministic challenges”

The development of the financial market and the transformation of the banking sector create a need for diagnostics of its financial security. This study is aimed at determining the level of the Ukrainian banking sector financial security in the event of decapitaliza- tion of the national economy. The paper uses multicomponent and behavioral analysis methods. The empirical study is based on Ukrainian data for 37 indicators by three components (for multicomponent analysis) and 23 indicators (for behavioral analy-sis). The study presents an improved algorithm for monitoring the level of Ukrainian banking sector’s financial security based on the calculation of the integral indicator. Only the system of “Financial results” indicators as the most significant component has relative independence from the other two components (“Financial stability” and “Macroeconomic stability”). According to assessments, in 2008–2017 Ukrainian bank- ing sector’s financial security was 0,485-0,539; and in 2018 it became 0,626. The behavioral analysis of the partial integral indicator of the “Financial stability” component with the withdrawn assets located in offshore jurisdictions revealed the causal relation of the negative impact of capital outflow on the financial stability of the banking sector. This study has a practical value for determining the level of the banking sector financial security. and micropruden-tial policy norms and lack the tools to solve their own tactical and strategic tasks. Under such divergence, banks are not aimed at maintaining the banking sector’s financial stability as a whole. The impact of current economic, organizational, and other changes on the banking sector manifests itself in the fact that the disturbance of the equilibrium condition of the sector itself under their impact should to be correlated with its potential ability to return to a stable condition when solving problems of the economic system without being limited to servicing function only. The banking sector’s ability to maintain a stable capacity under the conditions of unstable external


INTRODUCTION
Systemic regulation of the banking sector is one of the most important tasks for Ukraine in the context of the need to overcome further crisis phenomena in the economy. In the current environment of the divergence of the financial sector over the real sector, the demands for quality information about its performance and the ability to make managerial decisions that provide the material basis for socio-economic growth are growing. In the context of the said divergence, banks are oriented towards implementing macroprudential and microprudential policy norms and lack the tools to solve their own tactical and strategic tasks. Under such divergence, banks are not aimed at maintaining the banking sector's financial stability as a whole.
The impact of current economic, organizational, and other changes on the banking sector manifests itself in the fact that the disturbance of the equilibrium condition of the sector itself under their impact should to be correlated with its potential ability to return to a stable condition when solving problems of the economic system without being limited to servicing function only. The banking sector's ability to maintain a stable capacity under the conditions of unstable external

LITERATURE REVIEW
Determining the level of the banking sector's financial security is a matter of paramount importance, and it has been addressed and partly solved in numerous scientific developments and methodologies. This allows studying this problem based on and taking into account the existing materials, both already tested and still debatable.
To monitor the success of the banking sector, scientists and practitioners usually use two approaches such as ranking and rating banks and their risks in the national (regional) banking system or assessing the level of competitiveness and banks' compliance with national and international regulatory standards concerning their competitors.
Regarding the first group of researchers addressing ranking and rating banks' problems and their risks in the national (regional) banking system, the following should be noted. Berger and Humphrey (1997) apply parametric and nonparametric methods to a sample of 130 research units and 21 unique business practices to determine the level of efficiency of banking and parabank structures to confirm the variability of the approaches chosen to determine the performance of financial market entities. Aldasoro et al. (2020)  examine banks' credit rating as a critical criterion in making financial decisions, reflecting the quantitative assessment of risks. In this case, the authors use econometric tools of statistical analysis, but their application is limited to banks' economy.  and Stajić et al. (2020) study the objective ranking of banks and the real need for the formation of an adequate ranking model of the banking sector, which best assesses the quality of each bank and, as a result, provides a complete list of all ranked banks. Karkovska (2018) and Snishchenko (2018) identify measures and components of systematic control of the external and internal environment of the Ukrainian banking sector financial security to identify and assess the impact of destabilizing factors and risks to its normal functioning. Subbotovich and Antropova (2013) emphasize the significant role and economic importance of banking security as a prerequisite for the stable national economy's development, indicators of banking security, problems of safety state regulation, the effectiveness of certain areas of banking activity, etc. Their research, propositions, and scientific publications are based on financial policy. They have practical significance and aim to balance the country's financial system and adapt it to global requirements. Gladkikh (2015), based on analytical data, suggests measures for the successful implementation of banking policy in the medium term to ensure macroeconomic stability in Ukraine. Zachosova and Babina (2018) simulate the behavior of Ukrainian financial institutions' economic security in 2018 on the conjuncture of the financial market and the state financial security. At the same time, this paper lacks a methodology according to which the research is carried out. Monetary and financial stability in the coronavirus outbreak became the Tobias' research subject (2020). The assumption was made that if economic and financial conditions were to deteriorate further, policymakers could revert to the broader toolkit developed during the financial crisis.
Part of the research on the banking sector's financial security is devoted to clarifying and solving problems of banks' compliance with the requirements of state and international regulators. So, Obradović and Grbić (2015) analyze four indicators of financial intermediation development and unidirectional causality relationship between them. The authors investigate the situation with the financial deepening, which contributes to economic growth due to the advanced supply of new (updated) financial instruments.
At the same time, when agreeing that the banking sector is an open and dynamic system in the complex of financial relations, it is advisable to determine the banking sector's level of financial security, taking into account the lag of independent factors. Baranovsky (2004), Vasylchyshyn (2017), and Vlasyuk (2014) examine current monitoring methodologies, techniques and mechanisms for diagnosing the Ukrainian banking sector's financial security. The econometric approach to analyzing and monitoring the financial security of the banking sector studied in this paper is based on Goldberger (2011) and Dougherty (1991), who paid attention to the content of econometric analysis, and Greene (2011), who focused on the analysis of time series and the use of distributed lag models.
The IMF's experience in combating illicit financial flows and the financial sector assessment program (IMF, 2018) and research results of Herkenrath (2014) are considered in the paper. Herkenrath's research overview shows that illicit financial flows contribute to a decrease in the level of liquidity of centralized and decentralized finance, the financial stability of the economy, and the efficiency of the current tax system. The outflow of money from the country deprives banks of the surplus product from working with financial instruments. The information resources of the study were the Medium-Term . Concurrently, it is understood that, on the one hand, the links of the financial system function in close interrelation, and, on the other hand, there is a fact of divergence of the financial sector over the real one. Accordingly, in the rapidly changing conditions of the external environment of functioning and universalization of banks, the seven methodologies proposed in the Methodological Recommendations and described above are not possible due to certain qualifications and assumptions in each case or are of an advisory nature. In this context, all of the above problems proved that the topic requires further development, which determined the subject of the study.

AIMS
This study is aimed at monitoring the Ukrainian banking sector's financial security and identifying causal relationіships between the components of financial security in system-deterministic challenges.

Data selection for multicomponent analysis
The described two scientific approaches to assessing the financial security of the country's banking sector's are based on the analysis of a multi-level system with dynamic data with the possible application of ranking or rating norms. Both the first and second cases use static data as of a specific date. Due to the dependence of the current state of the system on the previous period, economic indicators are usually autocorrelated. Therefore, regression with the required independent factors, which forms a vector of unknown dimensions, generates biased estimates of the lag structure (Millar et al., 2016;Vu et al., 2019). Accordingly, this feature should be taken into account when calculating the banking sector's level of financial security.
For multicomponent analysis, it is proposed to use the following data and analysis system. The most significant indicators and the indicators proposed to assess the Ukrainian banking sector's financial security comprehensively, and that should be consistently reduced to an integral indicator are divided into three groups, that is a three-component approach to determining groups of indicators is proposed.
Appendix A, Table A1 shows the system of indicators evaluating the Ukrainian banking sector's financial security. As will be proved below, this list is not exhaustive and can be supplemented depending on the depth and purpose of the study. The priority of the study is the analysis of indicators of Appendix A, Table A1 in dynamics. This approach to ensuring Ukrainian banking sector's financial security will provide an adequate assessment of the value of the integral indicator in dynamics. To achieve timely response to threats to the Ukrainian banking sector's financial security, a comprehensive assessment should be introduced, including three blocks such as determining the overall integral indicator, determining the most influential indicators, and monitoring the most critical indicators (Appendix A, Figure A1).
Appendix B shows the Performance systems of the "Financial results" component, indicators of the "Financial stability" component and the system of indicators of the "Macroeconomic stability" component.
All selected indicators (Appendix B) could be used to combine into one standard integral indicator, each value of the actual index is standardized. The system of indicators was standardized using the maximum and minimum values of each of the indicators for the period 2008-2018 (Appendix C): for stimulants: where a -the actual value of the indicator; max x and min x -the maximum and minimum value of the indicator in the aggregate.
It is assumed that specific indicators have the same impact on each component of the Ukrainian banking sector's financial security, and there is no need to determine the significance (weight) of each of the selected indicators. Then partial integral indicators for each component are calculated separately for each year as the average of standardized indicators:

Criteria for a qualitative assessment of the level of the Ukrainian banking sector financial security
There are the following approaches to determining the threshold values of indicators: • legislative, or the establishment of limit values of indicators at the level of legislation; • analogue, or determination of threshold values by comparing the corresponding indica-tors with the values in countries with comparable macroeconomic indicators, international organizations' calculations; and • expert assessments.

Determination of the integral indicator
Based on the integral indicators of each component, the level of the banking sector's financial security of the economy is calculated (Appendix C). Figure 1 shows a graphical interpretation of the results. Appendix C shows that the level of the overall integral index ranges from 0.474 in 2012 to 0.626 in 2018. To quickly respond to adverse changes, one can determine the most critical indicators affecting the financial security of the Ukrainian banking sector.
Based on a comparative analysis of the paired correlation coefficients of the selected indicators and the overall integral indicator ( Table 2), it can be seen that quite a few factors have a significant value.
Checking using Student's t-criterion for the significance of correlation coefficients at the level of α = 0.05 (t crit = 2.26 -for a two-way critical area) made it possible to select indicators whose correlation coefficients significantly differ from zero with a probability of 0.95, that is, correlate with the general integral index of Ukrainian banking sector's financial security (Table 3).
An analysis of the interconnections between a comprehensive assessment of the financial security of the banking sector and the selected indicators shows that the greatest threat may be posed by slow growth of total assets of banks, funds of business entities in bank accounts, gross loans Source: Developed according to the data from Appendix C. issued to legal entities and individuals, net interest income of banks, insignificant macroeconomic development. It is also advisable for banks to monitor the ratio of non-performing loans to total gross loans, the proportion of liquid assets to total assets, and the rate of a net open position in foreign currency to capital.

Behavioral analysis data
For behavioral analysis, it is proposed to use the following data and analysis system. The most important indicators have been identified regarding internal indicators for assessing the Ukrainian banking sector's financial security. Regarding external indicators, the impact of funds illegally exported from the country's economy is investigated as an interactive external impact index. This money, being part of the state's liquid resources, mostly do not participate in experiments and national statistical samples, and also have an intermittent basis for calculating international monitoring groups (Herkenrath, 2014). It should be noted that the subjects of funds illegally exported from the country's economy use entirely legal forms and methods of banking and business operations. Besides, the use of banking tools allows making non-cash transfers of funds at the request of economic entities or virtual entities of the economy. Indeed, with the advent of digital technologies and the disclosure of bank secrecy (since 2006; The Verkhovna Rada of Ukraine, 2019), the possibility of withdrawing funds outside the participation of banks has increased. Still, the number of banks in Ukraine has significantly decreased. The structure of the banking sector has also undergone significant changes: if at the beginning of 2012 three state-owned banks held 16% of the system's assets, then in 2017 the share of assets of the four largest state-owned banks increased to 55%. Funds illegally exported from the country's economy represent a destabilizing movement of capital. The withdrawn funds have a significant impact on the country's economic stability and the global financial system due to the depletion of the state's foreign exchange reserves, reduced tax revenues, and reduced government revenues. They divert finance from public spending and can reduce the capital available for private investment. Illegal flows can also contribute to the reduction of liquidity of assets, low domestic investment activity of citizens. Finally, destabilizing flows leads to a paradigm shift in economic behavior and social management practices (Herkenrath, 2014; IMF, 2018).   illegally exported from the country's economy could provide for the lack of liquid resources that the Ukrainian economy was experiencing at that time. At a minimum, a comparison of the dynamics of the size of withdrawn assets placed in offshore jurisdictions and a partial component of the integral indicator "Financial stability" confirms the supremacy of the first factor over the second one with an hour delay per year. The delay can be explained by the existence of a so-called "social security cushion" in the form of the State budget. Accordingly, in the system of indicators of banking sector's financial security (Appendix A, the "Macroeconomic stability" component), it is necessary to enter an indicator of funds illegally extracted from the country's economy with a lag of +1 yea r. The paper proposes an algorithm for monitoring the Ukrainian banking sector's financial security, which contains three blocks, according to three groups of components. For block 1, to determine the Ukrainian banking sector's financial security, it is proposed to expand the acceptable list of indicators into macroeconomic and highly specialized components of bank sectors' performance. Block 2 provides for determining the most powerful indicators and monitoring their dynamics, using preventive, administrative or market regulators to maintain an acceptable level of Ukrainian banking sector's financial security. If an abnormal level of selected indicators is detected, which are assigned the task of continually monitoring the level of financial security, a decision is made to improve the situation, or radical management mechanisms are applied. Block 3 involves monitoring the factors that influence the most powerful indicators. The paper proposes to add funds illegally withdrawn from the country to these factors. The relationship between the dynamics of the partial component of the integral indicator "Financial stability" and the dynamics of funds illegally removed from the country is revealed. It is be- Based on the study, it is believed that the financial security of the country's banking sector should be understood as the state of the country's banking system, in which its ability to implement financial, currency, and monetary policies in an unstable external environment is maintained through managerial decisions made based on strategic analysis of macro-, meso-and microenvironment. 2018. Based on behavioral analysis, the dynamics of the withdrawal of remote assets located in offshore jurisdictions was compared with the partial integral indicator "Financial stability". This allowed determining the influence of the behavioral factor on the efficiency of the banking sector's functioning in Ukraine. Thus, this study forms an applied basis for monitoring the financial security of the country's banking sector and improve the tools for this.

DISCUSSION
The results will allow the government to adjust banking and monetary policies to form a "safety cushion" for the financial sector and minimize financial threats.

AUTHOR CONTRIBUTIONS
Conceptualization: Nadiia Yasynska. Financial stability The ratio of regulatory capital to risk-weighted assets FF 1 The ratio of regulatory capital of the first level to risk-weighted assets FF 2 The ratio of non-performing loans net of provisions to capital FF 3 Ratio of non-performing loans to total gross loans FF 4 Ratio of net income to average total assets (return on assets) FF 5 Ratio of net income to average capital (return on capital) FF 6 Ratio of interest margin to gross income FF 7 Ratio of non-interest expenses to gross income FF 8 Ratio of liquid assets to total assets FF 9 Ratio of liquid assets to short-term liabilities FF 10 Ratio of net open position in foreign currency by capital FF 11 The ratio of capital to assets FF 12 Large risk-to-capital ratio FF 13 The ratio of gross position in financial derivatives from the asset to capital FF 14 The ratio of gross position in financial derivatives on the liability side to the capital FF 15 Ratio of profit (loss) on financial instruments to gross income FF 16

Ratio of staff costs to non-interest expenses FF 17
The spread between the interest rates on loans and deposits FF 18

Spread between the highest and lowest interbank rates FF 19
Ratio of customer deposits to total gross loans (other than interbank loans) FF 20 Ratio of foreign currency loans to total gross loans FF 21 Ratio of foreign currency liabilities to total liabilities FF 22

Macroeconomic stability
Gross domestic product ME 1 Inflation rate ME 2 NBU discount rate ME 3 External debt of Ukraine ME 4