1. Ukrainian Academy of Banking of the National Bank of Ukraine Banking Department Banking Lecture 1 Bank lending Anna Vladimirovna Buriak, Ph.D., Senior Lecturer at Banking Department

2. Agenda 1. The model of banking. 2. Active vocabulary. 3. Bank assets and bank lending. 4. The role of bank lending

3. BANK Shareh olders Savers Attracting money Allocating money Equity Retail funding (deposits) Wholesale funding (non-deposits) Bank liabilities Bank assets 1. The model of banking

4. 2. Active vocabulary  credit  credit: -to provide a credit (предоставить кредит); -to obtain a credit (получить кредит); -to be creditworthy (быть кредитоспособным)  loan (advance) -To allow a loan (предоставлять кредит); -To make a loan (получить кредит); -Short-term and long-term loans -Loan to individuals; -Business loans  to lend -Lender (кредитор) -Lending (кредитование)  to borrow  to borrow (одалживать, заимствовать) -Borrower (заемщик)

5. Bank assets  assets are the claims of the bank on others;  in the distribution of its assets, the bank is governed by certain well defined principles;  the most important principles of the distribution of assets of the bank are liquidity, profitability and safety (security); 3. Bank assets and bank lending

6. Structure of bank assets 3. Bank assets and bank lending Central bank money Notes and coins (cash) Reserves in central bank (proportion of bank liabilities) Loans and advances Investments (invested in securities) Non-marketable debt Marketable debt Other assets (fixed)

7. Bank lending (micro level)  the major source of bank income;  the main part of bank assets;  the riskiest type of bank asset; 4. The role of bank lending

8. Bank lending (macro level) Why is lending important?  More credit means increased access to finance and greater support for investment and economic growth;  But when expansion is too fast, such booms may lead to vulnerabilities through looser lending standards, excessive leverage, and asset price bubbles. Indeed, credit booms have been associated with financial crises 3. Bank assets and bank lending 4. The role of bank lending

9. Bank lending  sample of 170 countries  1960s to 2010  The median boom lasts three years  Most booms happen in middle-income countries Geographically, booms are more likely to be observed in Sub-Saharan Africa and Latin America 4. The role of bank lending

11. The positive side of bank lending Expectations regarding general economic activity  improve borrower creditworthiness  collateral values 4. The role of bank lending Borrower’s side

12. The positive side of bank lending Increase supply of credit and looser lending standards  greater investment  consumption 4. The role of bank lending Lender’s side

13. Economic activity is higher during booms compared to non-booms years 4. The role of bank lending Average change in Non-boom year Boom year Credit to GDP1,616,8 GDP3,15,4 Consumption4,05,4 Investment4,210,3 Equity prices3,811,0 Inflation10,79,3 Current account0,2-1,2

14. The negative side of bank lending about one in three booms is followed by a banking crisis 4. The role of bank lending Financial crises

15. 4. The role of bank lending

17. Factors (triggers) of credit booms Financial reforms Capital account liberalization (capital inflows) Economic growth 4. The role of bank lending

18. 4. Practical task 1.To find out the meaning of the ratio – “Domestic credit provided by financial sector” 2.Using data of the World bank (http://data.worldbank.org/indicator/FS.AST.DOMS.G D.ZS/countries) make up the graph of dynamics of Domestic credit provided by financial sector during 2000-2014 for Asian, European Union, North and South America countries and countries of Commonwealth of Independent States (Ukraine, Russia, etc.)http://data.worldbank.org/indicator/FS.AST.DOMS.G D.ZS/countries