THE MASTER'S RESEARCH PAPER:

“BANK PROFITS MANAGEMENT”

(BASED ON THE JOINT STOCK COMPANY “ОТP BANK”)

Naumenko T. B-09

Scientific supervisor: S.A. Kuznetsova, Doctor of Economics, Full Professor,

Head of the International Finance and Banking Department

СONTENT : Chapter 1 Theoretical basis of yield management of the bank.

1.1. The essence of managing the Bank's profitability

1.2. Methodological evaluation instruments bank profitability: Ukrainian and international experience

1.3. Strategies for bank profitability

1.4. Evaluation of the profitability of banks of Ukraine Chapter 2 Analysis of yield management of JSC "OTP Bank"

2.1. Organizational and economic characteristics of JSC "OTP Bank"

2.2. Assessment of the profitability of JSC "OTP Bank"

2.3. Evaluation of the effectiveness of management profitability JSC "OTP Bank"

Chapter 3 Ways to improve yield management of JSC "OTP Bank«

3.1. Organisational measures to improve the profitability of JSC "OTP Bank"

3.2. Directions improve profitability analysis of JSC "OTP Bank"

3.3. Model Application Dupont (Du Pont) in JSC "OTP Bank« Chapter 4 Health and safety in emergency situations JSC "OTP Bank"

4.1. Public works in JSC "OTP Bank"

4.2. Security in emergencies in JSC "OTP Bank

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The purpose of the research is to develop measures to improve JSC "OTP Bank" profits management.Tasks:

- to examine the nature of bank profits management;

- to consider tools of bank profits management;

- to conduct a critical review of bank profits management;

- to analyze the performance of the bank during the period of 2009-2013;

- to develop ways of bank profits management improving. The Object of the investigation is the bank profits.The Subject of the investigation is the bank profits management. The Basis of investigation is JSC "OTP Bank"

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The profitability of the bank The profitability of the bank is the relative value of enterprise management in terms of profit.

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The main profitability indicators

Return on equity after tax

Return on equity before tax * tax rate

Net margin / equity quota

Risk Margin +Gross Profit Margin

Margin Gross Income - Gross margin requirements

Gross margin percent +

  commission margin +

trading margin +

  ekstra margin

Personnel costs margin + material

costs margin

Figure 1. European model of calculation and analysis of bank profits

Return on assets

Use of assets * Margin of profit

Average Assets / Total Revenue

Net income / total income

Interest income on loans +

Investments interest +

payment services  + other incomes

Cash and necessary payments +

  investment (taxable and tax-free) +

  loans (commercial, consumer, farmer, mortgages and other

loans) +

other assets

Total revenue -

  interest expense (deposits, non deposit) -

Operating and other expenses (salary, relocation costs, provisions

for losses on loans and other expenses) -

income taxes

Figure 2. American model of calculation and analysis of bank profits

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maximization of service by

stimulating the expansion of branch network in order to

increase profit entity

combination of aggressive and

defensive strategy, so called "medium", which

allows to correlate advantages and

disadvantages of both options of bank profits

management strategies

Aggressive strategy

Defensive strategy

Diversification strategy

cost control with the purpose of further

increase of the bank's profit as the

difference between the absolute value of

revenues and expenses. This

strategy is effective in

the long term

Bank profits management strategies

Figure 3. Types of bank profits management strategies

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№ Indicator01.01.2008

01.01.2009

01.01.2010

01.01.2011

01.01.2012

01.01.2013

1 Return on assets 1,50 1,03 -4,38 -1,45 -0,76 0,21

2 Return on Equity 12,67 8,51 -32,52 -10,19 -5,27 1,44

3 Net interest margin 5,03 5,30 6,21 5,79 5,32 4,08

4 Net spread 5,31 5,18 5,29 4,84 4,51 3,49

Table 1 Indicators of Ukrainian banks profits for the period of 2008-2013,%.

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Figure 4. Results of JSC "OTP Bank" for 2011

Figure 5. Results of JSC "OTP Bank" for 2012

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Table 2Indicators of JSC "OTP Bank“ profits, %

Indicator 2010 2011 2012 Changes (+;-)

Return on Assets (ROA) 0,25 0,15 0,89 0,64

Return on equity (ROE) 12,55 12,09 6,35 -6,20

Interest margin (interest income)

2005390 1830174 1634257 -371133

Non-interest margin (non-interest income)

255241 313223 449484 194243

Net interest margin 8,13 8,12 7,92 -0,21

Net spread (spread profit) SPREAD

0,19 0,17 0,20 0,0110

Figure 6 Return on assets of JSC "OTP Bank"

Figure 7 Return on Equity of JSC "OTP Bank"

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1. Calculation of the actual values of the coefficients of return based on the balance

sheet and other forms of annual and quarterly reports;

2. Comparative factors evaluation with their

levels in the previous years and quarters;

3. Identifying the main trends in the dynamics of the coefficients (increase or

decrease);

4. Identifying factors that have influenced the established tendencies in factors;

5. Evaluation of factors from the standpoint of balance sheet liquidity and banking risks;

6. Recommendations to improve the bank profits or ensure its stability in the new year.

Figure 8. Stages analysis of JSC "OTP Bank" profits

Profit management

Income and expenses

management

Money back management

Profitability management of individual units

functioning

Analysis of

income

Analysis of costs

Turnover of

resources

Analysis of

financial ratios

Assets managem

ent

Development of business

plans

Pricing Policy

Liabilities policy

management

Politics of effect

(Marketing)

Liability managem

ent

Figure 9. JSC "OTP Bank“ returns management process

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Increased profitability of the bank

Planning and estimating of income yield

Improving of marketing policy Determination of the usage of all possible sources of funding

Developing a plan of emergency funding

Allocation of economic capital at risks

Improving risk management

Reducing costs, to create banking services

Improvement of interest policy

The increase in bank profits

Ensuring the growth of non-interest income

Figure 10. Scheme of common organizational measures to improve JSC "OTP Bank“ profits

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Figure 11. Components of the DuPont model

The DuPont Model

Two-factor model Three-factor model

ROE = Profit / (Capital Bank) = ROA * LR = profit / (assets) * (assets) / (Capital Bank)

ROE = Profit / (Capital Bank) =PM*ROA*LR = profit / income *

income / assets * (assets) / (Capital Bank)

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Factor Value

Two-factor model

Net income assets 2%

Multiplier of capital 98%

Three-factor model

Profit margin (total return) 0%

Return on (reversibility) assets 11%

Multiplier of capital 89%

Table 3Factor ROE of JSC "OTP Bank" by the DuPont model

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Thank you for your attention!

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