Reputational risks, value of losses and financial sustainability of commercial banks

Natalia Kunitsyna (1) , Igor Britchenko (2) , Igor Kunitsyn (1)

1 NCFU - North-Caucasus Federal University
2 State Higher Vocational School Memorial of Prof. Stanislaw Tarnowski in Tarnobrzeg

Currently, under the conditions of permanent financial risks that hamper the sustainable economic growth in the financial sector, the development of evaluation and risk management methods both regulated by Basel II and III and others seem to be of special importance. The reputation risk is one of significant risks affecting reliability and credibility of commercial banks. The importance of reputation risk management and the quality of their assessment remain relevant as the probability of decrease in or loss of business reputation influences the financial results and the degree of customers', partners' and stakeholders' confidence. By means of imitating modeling based on Bayesian Networks and the fuzzy data analysis, the article characterizes the mechanism of reputation risk assessment and possible losses evaluation in banks by plotting normal and lognormal distribution functions. Monte-Carlo simulation is used to calculate the probability of losses caused by reputation risks. The degree of standardized histogram similarity is determined on the basis of the fuzzy data analysis applying Hamming distance method. The tree-like hierarchy based on the OWA-operator is used to aggregate the data with Fishburne's coefficients as the convolution scales. The mechanism takes into account the impact of criteria, such as return on equity, goodwill value, the risk assets ratio, the share of the productive assets in net assets, the efficiency ratio of interest bearing liabilities, the risk ratio of credit operations, the funding ratio and reliability index on the business reputation of the bank. The suggested methods and recommendations might be applied to develop the decision-making mechanism targeted at the implementation of reputation risk management system in commercial banks as well as to optimize risk management technologies.

Mots clés: value of losses; sustainable development; business reputation; commercial banks; reputation risks; risk level; economic modeling

Domaines: Economies et finances; Méthodes et statistiques; Ingénierie, finance et science [cs.CE]; Finance [q-fin.GN]; Econométrie de la finance [q-fin.ST]

Natalia Kunitsyna, Igor Britchenko, Igor Kunitsyn. Reputational risks, value of losses and financial sustainability of commercial banks. Entrepreneurship and Sustainability Issues, 2018, 5 (4), pp.943 - 955. ⟨10.9770/jesi.2018.5.4(17)⟩. ⟨hal-01859319⟩