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Liburkina L. M.

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Financial Diagnostics of Banks in the Process of Consolidation: The Goals, Methods, Analytical Approaches
Prymostka L. O., Krasnova I. V., Lytvynenko O. K.

Prymostka, Liudmyla O., Krasnova, Iryna V., and Lytvynenko, Oleksii K. (2020) “Financial Diagnostics of Banks in the Process of Consolidation: The Goals, Methods, Analytical Approaches.” Business Inform 12:361–368.
https://doi.org/10.32983/2222-4459-2020-12-361-368

Section: Finance, Money Circulation and Credit

Article is written in Ukrainian
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UDC 336.71

Abstract:
The article is aimed at substantiating the economic feasibility and choosing from the methods of financial diagnostics of banks during consolidation in order to evaluate an agreement object as an investment project. The main directions of financial diagnostics of the M&A agreements for banks are defined. Emphasis is placed on the need to differentiate between the interpretation of the concepts of «financial diagnostics», «due diligence» and Financial Due Diligence (FDD). Taking into account the world and domestic experience, due diligence understanding is systematized and generalized through consideration of the related processes of the M&A agreement at the transaction level. The factors of the M&A agreement, which outline the areas of due diligence, are determined, the understanding of which ensures to have reduced the transactional risk of the transaction. It is specified that the main analytical instrumentarium for adequate substantiation and formation of an absolutely complete idea of the value of the agreed object is the FDD, which also serves as a quality basis for elaborating a strategy for the development of consolidated bank after the completion of the M&A agreement. The traditional FDD analytical instrumentarium, which covers both financial and institutional aspects, is proposed to be supplemented by including banks in the range of financial risks and sensitivity assessments. It is noted that to determine the internal value of the bank – the object of an agreement as a project for investment, approaches are used to forecast future activities, which include methods of discounting cash flows (DCF) and assessing the impact of the internal rate of return on the weighted average cost of capital (IRR / = WACC). On the basis of the generated sample of financial reports of 150 world banks, according to Refintiv, modeling of attractiveness of banks as investment projects through approaches (DCF) and (IRR / = WACC) is carried out. Criteria have been formed to choose an approach to assess the internal value of the banking business. On the basis of the allocated criteria, the results of modeling the attractiveness of projects according to the chosen approaches are compared. It is concluded that the most optimal in terms of accuracy of determining the internal (fundamental) value of the bank is the approach through the modeling of cash flows.

Keywords: financial diagnostics, due diligence, Financial Due Diligence (FDD), forecasting, modeling of net cash flows, equality IRR /= WACC, internal value.

Fig.: 3. Tabl.: 3. Bibl.: 12.

Prymostka Liudmyla O. – Doctor of Sciences (Economics), Professor, Head of the Department, Department of Banking and Insurance, Kyiv National Economic University named after Vadym Hetman (54/1 Beresteiskyi Ave., Kyiv, 03057, Ukraine)
Email: [email protected]
Krasnova Iryna V. – Doctor of Sciences (Economics), Professor, Professor, Department of Banking and Insurance, Kyiv National Economic University named after Vadym Hetman (54/1 Beresteiskyi Ave., Kyiv, 03057, Ukraine)
Email: [email protected]
Lytvynenko Oleksii K. – Applicant, Department of Banking and Insurance, Kyiv National Economic University named after Vadym Hetman (54/1 Beresteiskyi Ave., Kyiv, 03057, Ukraine)
Email: [email protected]

List of references in article

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Krasnova, I. V., and Kotsiuba, I. I. “Sutnist ta klasyfikatsiia bankivskykh finansovykh stratehii“ [Essence and Classification of Banking Financial Strategies]. Naukovyi visnyk Khersonskoho derzhavnoho universytetu. Seriia «Ekonomichni nauky». 2014. http://www.ej.kherson.ua/journal/economic_09-1/195.pdf
Prymostka, L. O., and Krasnova, I. V. “Formuvannia stratehii instytutsiinykh investoriv v umovakh ekonomichnoi nestabilnosti“ [Formation of Strategy of Institutional Investors in the Conditions of Economic Instability]. Proektnyi pidkhid ta innovatsii v osviti u konteksti intehratsii do yevropeiskoho osvitnyoho prostoru. Lodz: Tsentralnoievropeiska Akademiia Navchan ta Sertyfikatsii (CEASC) (Polshcha), Universytet Suspilnykh Nauk (Polshcha), DVNZ «KNEU» (Ukraina), 2018. 237-240.
“Finansovyye dannyye o kompaniyakh“ [Financial Data about Companies]. Refintiv. https://www.refinitiv.ru/ru/financial-data/company-data

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