Return on risk-weighted assets (RoRWA) as the basis for new approach in management of the banks - the case of the Western Balkans
Date Issued
2017-03-30
Author(s)
Stojchevski, Stefan
Abstract
Stricter regulation of banks, which emerged from the recent financial crisis draw
attention to new challenges in the operation of banking institutions. To cope with these
challenges, banks are searching new approaches, metrics and indicators which will enhance
the quality of their risk management. One of those approaches is based on Return on Risk-
Weighted Assets (RoRWA). This approach is theoretically and empirically elaborated in this
paper. His application enables banks to take appropriate measures to enhance their
performance and subsequently the performance of the economy as a whole.
Besides the theoretical elaboration of the importance of RoRWA from micro and
macroeconomic aspect, as well as a new approach for better management with risks, liquidity
and capital in terms of stricter regulatory requirements, the paper is with special emphasis on
quantitative analysis and research of the values and the trend of this indicator in the countries
of the Western Balkans. The quantitative analysis is focused on three aspects: (1) Exploring the
link between RoRWA and the economic activity in order to determine the performance and the
efficiency of the banks in their operations. (2) Exploring the trend of RoRWA on a banking
sector level in order to determine the resilience on the financial crises of the banking systems
in different countries (3) Exploring the trend of RoRWA on the biggest banks in the analyzed
countries in order to determine how much the quality of risk management by bank affects their
overall performance. The comparative analysis in this paper is focused on the relationship
achieved between risk and profit by the banks in the countries from the Western Balkans and
in the developed European countries. The analysis covers the period during and after the
financial crisis in order to identify the effects from the crisis on the performance of the banks
and the factors that contributed some banks and banking sectors to be more resilient on the
adverse effects from the crisis. The data used in the analysis is extracted from the financial
statements of the banks in Macedonia, Croatia, Slovenia, Bulgaria, Serbia as well as data and
indicators for the banking sectors as a whole in these countries. Subject to analysis in this paper
are the strategic perspectives of the banks included in the analysis as well in order to identify
threats and potential of the banking sectors in these countries.
attention to new challenges in the operation of banking institutions. To cope with these
challenges, banks are searching new approaches, metrics and indicators which will enhance
the quality of their risk management. One of those approaches is based on Return on Risk-
Weighted Assets (RoRWA). This approach is theoretically and empirically elaborated in this
paper. His application enables banks to take appropriate measures to enhance their
performance and subsequently the performance of the economy as a whole.
Besides the theoretical elaboration of the importance of RoRWA from micro and
macroeconomic aspect, as well as a new approach for better management with risks, liquidity
and capital in terms of stricter regulatory requirements, the paper is with special emphasis on
quantitative analysis and research of the values and the trend of this indicator in the countries
of the Western Balkans. The quantitative analysis is focused on three aspects: (1) Exploring the
link between RoRWA and the economic activity in order to determine the performance and the
efficiency of the banks in their operations. (2) Exploring the trend of RoRWA on a banking
sector level in order to determine the resilience on the financial crises of the banking systems
in different countries (3) Exploring the trend of RoRWA on the biggest banks in the analyzed
countries in order to determine how much the quality of risk management by bank affects their
overall performance. The comparative analysis in this paper is focused on the relationship
achieved between risk and profit by the banks in the countries from the Western Balkans and
in the developed European countries. The analysis covers the period during and after the
financial crisis in order to identify the effects from the crisis on the performance of the banks
and the factors that contributed some banks and banking sectors to be more resilient on the
adverse effects from the crisis. The data used in the analysis is extracted from the financial
statements of the banks in Macedonia, Croatia, Slovenia, Bulgaria, Serbia as well as data and
indicators for the banking sectors as a whole in these countries. Subject to analysis in this paper
are the strategic perspectives of the banks included in the analysis as well in order to identify
threats and potential of the banking sectors in these countries.
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