Oleh Kolodiziev

This paper presents the recommendations for selecting a kind of financial innovation in a bank based on the results of theoretical research regarding its usage as a tool for ensuring bank financial soundness. The study is aimed at developing an approach to selecting a kind of financial innovation depending on the level of bank financial soundness and the stage of bank life cycle. The existing method of identifying a bank’s life cycle stage in the framework of the developed approach was improved: it was offered to use the criteria of the growth rates of a bank’s market share, total income, staff costs and net cash flow for grouping banks by the stage of their life cycle and conduct two-steps clustering which helps to determine those banks which are on the transitional stages and to refer a bank to a similar group (growth, stabilization and decline). The empirical results of its implementation suggest that there are three groups of Ukrainian banks that vary according to the stage of bank life cycle (growth, stabilization, decline), excepting those institutions which are on the transitional stages. By the example of banks which represent the main characteristics of each cluster, the authors recommend to launch particular kinds of financial innovation in bank operating activity, taking into account the peculiarities of each group. The empirical results confirm the relevance of the developed approach and its value for identifying the current phase of a bank’s development and managing its financial soundness.

Keywords: bank financial soundness, bank life cycle stage, cluster analysis, discriminant analysis, Ukraine.
JEL Classification: G21, D91

Capital stability of the banking system is the basis of its effective development and realization of its main function – optimal redistribution of capital. So, the aim of the article is to develop indicators of capital stability of the banking system, and to propose the frameworks for the long term capital stability strategy of the banking system in Ukraine. For this purpose, the analysis of micro- and macroeconomic indicators of the capital stability of domestic banks within the period 2007–2016 is made. To carry out the research, there were used the statistic data of the National Bank of Ukraine, its legislative and regulatory documents, the Basel Accords.

Capital stability of the banking system has been defined in the article as the process of ensuring capitalization that is adequate to the banking risks and cyclical economic development. It has been detected that a significant reduction in return on equity of the Ukrainian banks in 2014–2015 even with restoring their liquidity has had a crucial destabilizing impact on their capital stability. In order to improve the assessment of capital stability, its key indicators for the groups of domestic banks have been studied. The necessity of refocusing macroprudential requirements of the National Bank of Ukraine from quantitative indicators to qualitative ones to ensure economic development has been proved. It has been concluded that a necessary condition for restoring the Ukrainian banking system was to develop an effective strategy for ensuring its capital stability, which should be focused on the creation of its diversified structure.

Despite the widespread use of benchmarking as an effective tool for improving the efficiency of the bank’s functioning, its implementation does not take into account the relation between comparable performance indicators, the choice of benchmark for comparison, deviations of indicators from target values with stages of the bank’s life cycle, which cause differences in the intensity and characteristics of development of financial institutions. The procedure for identifying a reference bank for comparison is also insufficiently specified, which is important in terms of adapting its experience by the recipient bank due to the possible fundamental differences in their functioning. Therefore, the article has modified the technology of benchmarking of the bank’s performance based on the life cycle concept and the DEA approach.
The research is based on the use of the DEA method to determine the most efficient bank as a reference bank in benchmarking comparison; canonical analysis – for the formation of a list of indicators of bank performance; cluster analysis – to substantiate the levels of deviations of the actual values of comparable indicators from the target ones.
The study envisages, firstly, the selection of indicators for benchmarking comparisons based on the identification of causal relationships between the indicators of subsystems “Finance”, “Customers”, “Business processes”, “Personnel development” that arise at each stage of a bank’s life cycle; secondly, the choice of a benchmark bank for comparison according to the maximum value of the performance indicator calculated through the DEA method for a set of banks that are at one and the same stage of their life cycle; thirdly, definition of the range of deviations (low, permissible, critical) of the actual values of comparable indicators of the effectiveness of management of finance, customer base, business processes and personnel of the bank from the target ones. A practical testing of the benchmarking technology was carried out on the example of Ukrainian banks, whose stage in 2016 was identified as “intense growth”.

The development of public-private partnership in Ukraine in recent years has become very important as an instrument of anti-crisis orientation. The real economic situation objectively creates the preconditions for more effective use of this mechanism and institutes of public-private partnerships in order to ensure sustainable economic development, obtain new ones and improve the quality of public services provided to the population.
The objective of the research is to identify the components of project finance risk management and to provide justification of effective and balanced sharing of risks between public and private partners as the prerequisite and the main principle of effective implementation of public-private partnership.
The authors used the following research methods: systemic approach, theoretical and empirical methods of scientific knowledge.
This paper examines types of investment project financing by banks based on public-private partnership. It defines the structure of public-private partnership according to sources of capital investment in the project vehicle. The paper identifies components of the risk management process in project finance. It proves that a balanced distribution of risks between the private and public partners is the key requirement and the primary principle of effective public-private partnership. In this way, the need for mobilization of additional financial resources for implementation of investment projects calls for extended cooperation of state agencies and banks as a part of the effort of economic crisis management.

The influence of information is the main productive force and the subject of production for the economic systems development. Information services contribute to the competitive economy, to the provision of optimal conditions for human development, and the implementation of effective democratic procedures. The results of the socio-economic development of Ukraine testify to the growing lag of the parameters of its competitiveness from many countries of the world and to the strengthening of differentiation in the regional development. Since the regional environment today largely determines the competitiveness of the entire national economy, it becomes important to discuss the appropriate methodological tools for assessing the development level of information and communication infrastructure (ICI) in the regions of Ukraine.
Given the necessity of solving a specific problem, a methodological approach to assessing the development level of ICI is proposed, which is based on the calculations of integral indicators by the entropy method and aimed at the implementation of a group of economic regions in accordance with its defined parameters. The improved methodical toolkit takes into account consistent stages of the system for estimating indicators, which allows to analyze and evaluate the levels of ICI regions development and to obtain the value of specific digital divisions between individual regions.
The implementation of the proposed scientific and methodological approach allowed to obtain the results of the assessment of the ICI development level, to allocate regional clusters depending on the ICI development levels, to identify factors that restrain the ICI development in the regions and to propose recommendations for their elimination.

According to the stages of the banking system stability monitoring, the analysis of caus¬al links is used to identify the causes of the crisis trends spreading and the rationale for the most effective levers of regulatory influence on the banking system parameters by the central bank.
The research is based on the use of the canonical correlation method for structuring causal links between the indicators for the assessment of the banking system stability, which are grouped into four sub-indices (assessing the intensity of credit and financial interaction in the interbank market, the effectiveness of the banking system functions, structural changes and financial disproportions in the banking system, activities of systemically important banks); the method of regression analysis and the calculation of elasticity coefficients is also used to assess the sensitivity of the banking system stability to changes in parameters that characterize the banking regulation instruments.
The article analyzes the results of quantitative and qualitative assessment of the banking system stability (comparison of actual results of the evaluation with the data for previous years and comparison of values of stability indicators with critical values). The causes of detected deviations are determined taking into account the results of applying the canonical correlations method. Regression models have been constructed to confirm the dependence of the banking system stability index on the change in parameters that characterize banking regulation instruments, and to determine the most effective of them. Practical testing of submitted proposals is realized based on the Ukrainian banking system indicators for 2007–2016.

In the conditions of intensification of bank lending, the issues of the need to overcome the consequences of the global financial crisis and the formation of a well-developed and effectively functioning credit market are of particular relevance. The dynamics of assets, credits of Ukrainian banks and the share of credits in assets during the last five years is researched. The structure of credits provided by type of borrower and by currency is considered. The classification of credits by categories of quality, distribution by classes of the borrower are analyzed and amounts of overdue debts are determined. The influence of credit operations parameters on the coefficient of return rate on assets of banks is justified and this influence is quantified by means of correlation and regression analysis. The model of the dependence of the coefficient of return rate on assets on the coefficients of the share of credits in assets and the net interest margin is developed. The prospects of development of the Ukrainian credit market are identified and ways of increasing the efficiency of banking credit activity are proposed.

The integrated business structures performance is underpinned by a wide range of external and internal factors that from a business unit perspective may have positive or negative implications for brand building. Moreover, in the context of business integration, the interaction among individual business units is of paramount importance that dramatically affects the performance of the entire business structure. The research objective is to provide a methodological framework for branding development through the calculation of integrated complementary and synergistic effects indicators, based on their compliance with the criteria of congruence and compatibility within architectonic elements of integrated business structures. The methodological toolkit design to estimate the integrated indices for complementary and synergistic effects involves the following stages: building a set of partial indicators for assessing complementary and synergetic effects, developing an algorithm to calculate an integrated index for complementary effect from internal and external brand interactions within integrated business structures (IBS), developing an algorithm to calculate an integrated index for a synergetic effect from brand integration within a business structure, individual business unit brand classification by different complementary and synergistic effects manifestations.
The proposed methodological approach contributes to facilitating brand integration in mergers and acquisitions, as well as enhancing the allocation effectiveness of portfolio roles of integrated business structure brands in product offering in the integration framework.

The financial equilibrium (“financial health”) of the enterprises is a prerequisite for their sustainable development, which ensures macroeconomic stability of the economy and the welfare of the state. It should be supported by the banking system, which performs the function of the effective reallocation of capital. Recently, the Ukrainian banking system itself is in a challenging situation and is undergoing a period of transformation. The purpose of the study is to assess how sufficiently the banking system of Ukraine supports the financial equilibrium of enterprises and to find the possibilities to strengthen its role in the progress of the real sector of economy. The authors single out three stages of financial equilibrium growth; each of them can be supported by the relevant banking services. The empirical analysis proves that the Ukrainian banks successfully ensure only the first stage, namely, liquidity balancing. To quantitatively assess the role of the banking system in supporting the enterprises’ financial equilibrium, a multivariate regression applying mathematical gnostic analysis in the program shell R Console is used. The research makes it possible to find out that only the economy monetization, the share of time deposits of economic entities and growth rate of mortgage loans have a positive effect. The authors conclude that the problems of both enterprises and the banking system are in the sphere of development and implementation of government economic policy and are aggravated by the restrictive monetary policy.

The study aims at developing an approach to determining the bank connectivity level. This will contribute to implementing a risk-oriented approach to counteracting money laundering, terrorist financing and the proliferation of mass destruction weapons. The article proposes to assess the degree of bank connectivity and determine the impact of these circumstances on money laundering risk using banks from foreign banking groups, whose capital share in the Ukrainian banking system amounts to more than 40 percent. Using the resulting correlation dependencies, two-dimensional binary matrices were constructed, which became the basis for creating graphs of links between banks. The institutions under study are found to be predominantly connected in terms of their sets (varieties), since the average proportion of banks with close direct links is over half, and the non-connectivity coefficient for them is about 40%. Each surveyed bank, on average, has direct links with eight other banks and inverse links with four other banks. Considering banks as tops of the graph, one can assume that there is a hidden relationship between some banks. This approach allows calculating all existing relationships between banks to assess risk. Transforming the graph from non-oriented to oriented made it possible to identify and clearly demonstrate possible directions of links between the investigated financial institutions, which should be further verified to determine the risk of money laundering, terrorist financing, etc.

The ambitious goals of environmental sustainability stated in international agreements and national programs require developing strategies to achieve them. At the same time, there is a lack of empirical evidence on the environmental performance factors, which can be purposefully changed to achieve an effective result in the short and medium-term. The paper aims to find the institutional factors of national environmental performance, including financial ones, which might be effectively used as environmental sustainability management tools. For this, the relationships between the Environmental Performance Index (EPI), as the dependent variable, and the indicators of control of corruption, the effectiveness of an anti-monopoly policy, financial opportunities, undue influence, corporate culture, innovation output, GDP, and income growth among the poorest population, using a sample of 81 countries, and the technique for constructing nonlinear regression models based on the normalizing transformations for non-Gaussian data were studied.
The study findings show that environmental performance can be predicted with sufficient accuracy by a linear model of its dependence on corruption control, minority shareholders protection, judicial independence, favoritism in decisions of government officials, tax incentives, ease of access to loans, and innovation output. Adding GDP per capita to the explanatory variables of the EPI model does not significantly affect the result accuracy but changes the model shape from linear to nonlinear. The paper substantiates ways to apply results for institutional reforms and sustainability management, such as inflation targeting, public credit guarantee schemes, performance-based loans, etc.

Post-socialist governments are looking for the best options to implement a fully funded pension system along with a pay-as-you-earn pension scheme. The paper aims to establish the impact of pension assets on economic growth using the example of post-socialist countries (Hungary, the Slovak Republic, Slovenia, Poland, and the Czech Republic). The use of methods of correlation and regression analysis allows determining the type of dependence (linear, exponential, gradual, and logarithmic) of countries’ economic growth indicators on pension assets and patterns for their investment (deposits, securities of public and private sectors). The obtained economic growth indicators of the studied post-socialist countries show a strong logarithmic dependence on the size of pension assets: Gross fixed capital formation depends on changes in the pension asset amount by 76.44% and GDP by 71.01%. The economic growth of the studied post-socialist countries is most significantly influenced by pension assets invested in deposits. Investing pension savings in public and private sector securities is less effective. The proved provisions determine the expediency of moving from the predominant pay-as-you-earn pension scheme to the predominant fully funded pension system for Ukraine. Such a transformation requires a stable and efficient construction of the country’s banking system, a developed policy for reforming the pension system while considering the criteria of the internal demographic, social, and financial situation.

The COVID-19 pandemic has complicated the operating environment for banks around the world. Determining the drivers of digitalization of banking services based on the principles of corporate social responsibility of banks makes it possible to find a way out of the crisis. The objective of the study is to develop a model for clustering banks in terms of the level of digitalization on the principles of corporate social responsibility.
In this study, a twofold model has been proposed: the first part includes the calculation of the level of digitalization of banking, and the second part includes mathematical simulation of the clustering of bank digitalization level. This study reveals new possible solutions to the digitalization of banking in the face of new threats. In particular, factor analysis identifies the main factors, cluster analysis ranks banks into three categories (A, B, C) of service digitalization, and a dendrogram identifies digitalization drivers. The model was tested on 22 banks. Eight per cent of the banks are rated A “Very good” and B “Good”. 92% have Level C “Satisfactory”. The results of the study prove that the model should be validated. It should be confirmed that the application of the developed methodology for increasing the digitalization of banking services will increase customer loyalty by 15%, improve sustainability by reducing risk by 10%, and make banks attractive for investment by 15-20%.

In Ukraine, card payment systems develop at a rate similar to that of modern digital payment instruments in most European countries.
The purpose of the paper is to establish interdependence and explain the nature of changing situations in the market of bank payment cards (BPC) taking into account the dynamics of economic development parameters in non-financial sectors of the Ukrainian economy.
The methodology of the study includes graphic methods analyzing the dynamics of economic development indicators and a method for analyzing the cause-and-effect relationship between the studied parameters considered with different lags.
Results showed that the most significant parameters for the development of the payment card infrastructure were the level of provision with POS terminals and the share of non-cash transactions. Their correlation with the economic development indicators reached 0.97. Up to the stage when the volume of non-cash payments by cards reached 5% of GDP, the impact of the BPC market on the change in the level of economic development had been insignificant according to the general idea. The development of the economy up to that point stimulated the development of the BPC market. Subsequently, the BPC market that was already sufficiently developed became one of the drivers aimed at the development of non-financial sectors of the Ukrainian economy after overcoming the 5% GDP level.

Improving the logistics service quality (LSQ) requires its assessment to identify appropriate reserves, which actualizes the scientific task of improving the appropriate methodological support for LSQ assessment. The purpose of this paper is to develop a model for assessing the quality of logistics services based on a specified list of criteria, their grouping, and the application of the mathematical apparatus of the fuzzy sets theory.
The study substantiates the expediency of using the fuzzy set method to assess the quality of logistics service and builds an LSQ assessment model that includes 12 criteria grouped into four groups: company reputation, product availability/quality, reliability/flexibility, and consumer service.
As a result of assessing the quality of logistics service, an integral indicator was obtained, which made it possible to determine the evaluations of its components: product availability/quality is rated high; reliability/flexibility – average; consumer service – good; and company reputation – poor. The obtained results indicate that such an aspect of logistics service quality assessment as company reputation needs particular attention, which confirms the modern trend of prioritizing the perception of the quality of logistics service, personal service/contact, and empathy by customers. Therefore, customers’ perception of the quality of logistics service becomes a decisive factor in the competitive struggle in the logistics services market. Moreover, it is a bottleneck in the process of increasing LSQ, which requires further research to develop appropriate management mechanisms.

The paper is devoted to an under-researched topic of the international business community’s reaction to russia’s armed aggression against Ukraine. It aims to evaluate how G7 and EU financial sanctions, institutional pressure, ESG ratings, and asset value of multinational banks in russia influence their decisions to reduce activities in the invading country. The study used the Yale CELI database of companies leaving and staying in Russia for the classification tree method. The results show that none of the banks headquartered in G7 and EU member states that had no or relatively little assets in russia before the invasion are doing business there on a pre-war scale. Unlike banks headquartered in other countries, most either curtailed their presence in that market or exited the market. This indicates that financial sanctions imposed by G7 and EU member states and institutional pressure on banks in these countries to withdraw from the russian market have proven effective to a certain extent. However, these factors do not meaningfully influence the business of multinational banks with significant assets in russia. The study has not confirmed the hypothesis that a bank with higher ESG ratings is more likely to curtail its operations in the market of an aggressor country and withdraw. However, nearly all banks that scaled back significant activities or even pulled out of russia have better ESG indicators than the industry average. The results suggest the feasibility of improving the methodologies of ESG rating providers for accurately measuring business reactions to aggression and war crimes.

Dividend policy, as part of corporate governance, is largely dependent on the institutional environment in which companies operate. The study aims to determine factors affecting dividend policy in the conditions of the Ukrainian underdeveloped stock market, legal insecurity of minority shareholders, high cost and concentration of capital. For this purpose, hypotheses about the impact of a company’s financial state, size, business risk, and ownership structure on dividend payments were tested using a sample of 58 Ukrainian non-financial public joint-stock companies and applying Interactive tree classification techniques (C&RT). The resulting classification model for predicting dividend decisions correctly classifies 92.86% of companies that paid dividends and 93.3% of companies that did not. The findings, based on the classification tree and importance scale, prove the hypothesis that companies in which individuals and institutional investors have a controlling interest are more likely to pay dividends than other non-state companies. The financial indicators accurately classify only those firms that do not pay dividends, and business risk does not affect classification accuracy at all. The paper substantiates the ways of using the study findings for economic regulation, protection of minority shareholders’ rights, and proliferation of modern corporate governance practices.

The article examines the competitiveness of Ukrainian banks influenced by economy digitalization, the dynamic spread of electronic payments and e-commerce, as well as innovative technologies aimed at providing digital services. When shifting to an Online Platform business model, a bank can expand its range of banking products, attract more customers, thereby forming a competition policy and gaining competitive advantages. The paper aims to assess the digitalization level affecting the general competitiveness of banks and its components based on Ukrainian banks. For this purpose, the following methods were used: standardized input statistical indicators, comparison and ranking, a cluster analysis, and a regression and correlation analysis. The cluster analysis confirmed the current role of digitalization as a competition driver that determines the competitive advantages of banks and creates additional opportunities to expand the customer base and the range of services. The correlation and regression dependence of the competitive position identified by the activity indicators of certain banks on the level of competitive digitalization confirmed a close direct impact on the competitive position of personal deposits arising from the development of digital banking technology; the pre-tax income, profiles of assets and personal loans, and corporate deposits are subject to a significant direct impact, while the weakest direct impact determines corporate loans. The foregoing substantiates the feasibility of large-scale introduction of innovative digital technologies by banks to maintain competitive positions in the banking sector of the economy. Applying the proposed approach based on certain regression equations, managers of Ukrainian banks will be able to assess the efficiency and make appropriate decisions concerning investing in digital tools and services.

The russian aggression against Ukraine underscores the need to reassess regional strategies for digitalization and inclusivity. The study aims to identify strategies for enhancing these areas during wartime. Taxonomy and cluster and factor analysis methods have shown that regions with a higher level of digitalization have lower levels of poverty and unemployment. Specifically, regions in the top quartile of the digitalization index reported, on average, 12% lower unemployment rates compared to those in the bottom quartile. The analysis identifies distinct regional groupings: areas such as Zaporizhzhia, Kherson, Donetsk, and Luhansk are partially occupied and exhibiting low digitalization and inclusivity, in contrast with Mykolaiv and Kirovohrad that show moderate progress. Rural regions face a significant digital divide, with only 60% of rural households having stable internet access compared to 90% in urban areas. Factor analysis confirms that wartime conditions have accelerated digital transformation, evidenced by a 42% increase in Diia app usage from 2021 to 2023 and a rise in internet penetration from 62% in 2019 to 78% in 2023. Additionally, IT sector export revenues grew by 20% in 2022, and technology startups doubled between 2019 and 2023. The study proposes a strategic framework for regional adaptation: intensive digitalization and inclusivity for Zaporizhzhia, Kherson, Donetsk, and Luhansk regions; digitalization for Mykolaiv region; inclusivity for Kirovohrad and Zakarpattia regions; and balanced adaptation for Chernivtsi and Khmelnytskyi regions. Recommended measures include modernizing digital infrastructure, expanding educational opportunities, supporting startups, and aligning digital and social initiatives to foster regional resilience and development.

The study aims to examine the impact of international trade on the sustainability of regional ecosystems in Ukraine, particularly amid the ongoing Russia-Ukraine war. The paper applies econometric modeling, factor analysis, cluster analysis, and geographic information systems (GIS) for spatial analysis. Sustainability indicators include environmental resilience indicators (carbon emissions, water quality), economic stability metrics (GDP per capita, investment in green technologies), and social sustainability factors (employment rate, access to education and healthcare). Results indicate that a 1% increase in exports enhances sustainability indicators by 0.9%, while a 1% rise in imports or demographic density reduces these indices by 0.94% and 0.75%, respectively. Cluster analysis identifies five groups of regions with varying ecological resilience, revealing critical vulnerabilities in southern and eastern Ukraine where resilience indices are below 0.5. War actions exacerbate these issues, causing infrastructure destruction, soil and water degradation, and pollutant emissions ranging from 152.5 to 16,311.4 thousand tons. Recommendations include scaling up environmental protection investments by 20% (from the current 5,965–165,228 thousand UAH) and integrating sustainability standards into international trade policies to harmonize economic activities with environmental management in crisis and post-war recovery contexts.