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THE NEW CAPITAL ADEQUACY FRAMEWORK (BASEL III) OPTIONS AND ISSUES IN COMMERCIAL BANKS OF LITHUANIA
Get PDFCurrently, banking is one of the most regulated activities in the world, because banks are the most important institutional units engaged in financial intermediation and affects not only the whole national economy of the country, but the global financial market as well. One of the key components of banking regulation are requirements expected for the bank capital, which prevent the bank from various unforeseen risks incurring substantial losses and are a sort of guarantee to maintain the financial system stability. For this reason, it is useful to find out what factors affect the capital adequacy ratio, and what measures the banks are going to take in order to meet the new capital requirements. The present research reveals the options of the implementation of the new system and the main problems faced by banks. The paper consists of four main parts: review of theory and literature, the research methodology of the factors influencing the capital adequacy, the study of factors influencing the capital adequacy ratio, and the capital adequacy management problem areas according to the Basel III requirements and conclusions.Currently, banking is one of the most regulated activities in the world, because banks are the most important institutional units engaged in financial intermediation and affects not only the whole national economy of the country, but the global financial market as well. One of the key components of banking regulation are requirements expected for the bank capital, which prevent the bank from various unforeseen risks incurring substantial losses and are a sort of guarantee to maintain the financial system stability. For this reason, it is useful to find out what factors affect the capital adequacy ratio, and what measures the banks are going to take in order to meet the new capital requirements. The present research reveals the options of the implementation of the new system and the main problems faced by banks. The paper consists of four main parts: review of theory and literature, the research methodology of the factors influencing the capital adequacy, the study of factors influencing the capital adequacy ratio, and the capital adequacy management problem areas according to the Basel III requirements and conclusions
Economic Prospects in the Context of Growing Regional Interdependencies: the European Union and the Eastern Partnership
Get PDFThe paper deals with the European Union programme devoted to the eastern neighboring states. Through its European Neighbourhood Policy (ENP), the EU works with its southern and eastern neighbours to achieve the closest possible political association and the greatest possible degree of economic integration. This goal builds on common interests and values — democracy, the rule of law, respect for human rights, and social cohesion. The EU is concerned that, despite sufficient funding and support from the EU, the targeted states did not raise to the EU targets for the programme or at least to a relevant one. We assume that such fact happened mostly because, although having very diverse economic and reform pasts emerged from the post-soviet period, they were considered and approached as a single group. The main hypothesis: has the umbrella of the EU funds in terms of the EaP provided for the six targeted states to intensify the growth of regional interdependencies as well as political cooperation and progressive economic integration? The main goal of the paper is to assess, by means of the statistical and comparison approach, the development and the economic sustainability of six targeted states (Belarus, Moldova, Ukraine, Armenia, Azerbaijan, and Georgia) in the period before and after the programme launching – the degree of regional interdependence and economic integration. The research was conducted using the methods of empirical (regression) analysis, theoretical explanations, descriptive analysis, and the Granger causality test
The Importance of Creditworthiness Evaluation in the Context of Lithuanian SME Performance Measurement
Get PDFThe paper deals with the methodology of Lithuanian small and medium enterprises (here and further – SME) creditworthiness evaluation and part of empirical research which reveals the importance and motives of creditworthiness evaluation in the Lithuanian SME performance measurement process. The aim of this study is to analyse the importance of creditworthiness evaluation in performance measurement and its influence on stable company’s growth. The three main goals of the paper are: 1) to reveal the methodology of Lithuanian SME creditworthiness evaluation, 2) to analyse the periodicity of Lithuanian SME creditworthiness evaluation and the motives of one’s integration into the performance measurement process, and 3) to identify creditworthiness evaluation factors which correlate with stable SME growth results. Analysis of related literature, information comparison and generalization are used for the credit risk and creditworthiness evaluation methodology overview. Empirical research is performed using the survey method, for data evaluation the descriptive statistics method, as well as qualitative (systematization, classification, causal, functional and structural links) and quantitative data analysis (quantitative indicators calculation) were applied. The research results have revealed that the companies evaluating partners’ and their own creditworthiness have by 10% higher three last year revenues and the number of employees growth. The paper concludes that creditworthiness evaluation and stable company’s growth correlate and enable SMEs to pursue stable growth results while increasing competitiveness and considering confidence and trust among business partners
Financial Stability, Fiscal Sustainability and Changes in Debt Structure after an Economic Downturn
Get PDFIn this paper, the author finds links among changes in private and public debt during economic downturn and discusses their financial stability and fiscal sustainability consequences. Financial deepening in years before the economic downturn resulted in the growth of indebtedness among agents within economy that sustained afterwards. The European Union has not become less indebted during and after the economic meltdown, but the structure of debt holders has changed. The growth of private debt in the upturn phase resulted in a qualitatively new level of economy. However, in order to sustain the same level after the economic downturn, the public sector was forced to increase its debt. As a result, interactions among financial stability and fiscal sustainability have become more pronounced as monetary financial institutions experienced deleveraging from the private sector and an increase of leverage from the public sector. Thus, the financial stability and fiscal sustainability nexus is analysed by employing flow-of-funds data that show balanced interlinkages among real and financial flows. Recent discussions on sovereign debt instability and suggestions to diminish public debt whatever it costs lack an appropriate answer who will replace it as the flow-of-funds in economy is always in balance
SPENDING AND SAVING PATTERNS OF TWO CONSUMER AGE GROUPS DURING ECONOMIC DOWNTURN AND RECOVERY OF 2009–2011 IN LITHUANIA
Get PDFPurpose. The purpose of the paper is to summarise and present differences in spending patterns between the two age groups (19–26 and 40–68) during the period of economic downturn and recovery. The method of longitudinal study allows finding how the expectations towards financial situation and spending behaviour change over three years (2009, 2010, 2011). This paper summarizes findings from the three years and expands the initial findings of the authors that have been published before (Urbonavičius, Pikturnienė, 2010).Methodology. The survey is based on a comparison of data from the three sets of respondents surveyed in spring of the 2009, 2010 and 2011, using the same questionnaire. Students, unaware of survey objectives, were asked to fill in questionnaires themselves and to distribute another part of the questionnaire to a member of their household, who is one generation elder (typically parents). In total, 455 households were interviewed, each producing two sets of answers to the survey questions.Results of the survey showed that younger respondents perceived the impact of the economic downturn in relation with expectations in a more casual way. They had higher expectations towards the income increase. Spending of both age groups, as well as their expectations towards prices were very similar throughout all the studied years. However, the older generation was more likely to save in order to survive, whereas the younger generation did not change its spending habits or decided to reduce spending for saving reasons.Practical implications. Since younger generation perceived the economic downturn situation more casually and reported a higher expected income, marketing strategies based on brand value, exclusivity, price premiums can be continued to target it even during the economic downturn. The older generation demonstrated a higher caution and frugality, as well as lower expectations towards income; therefore, value for price or lower price strategies could be more suitable for this age group.Value / originality. Longitudinal data on two age groups provide for a better understanding of the consumer behaviour during the economic downturn in general and in Lithuania in particular.Purpose. The purpose of the paper is to summarise and present differences in spending patterns between the two age groups (19–26 and 40–68) during the period of economic downturn and recovery. The method of longitudinal study allows finding how the expectations towards financial situation and spending behaviour change over three years (2009, 2010, 2011). This paper summarizes findings from the three years and expands the initial findings of the authors that have been published before (Urbonavičius, Pikturnienė, 2010).Methodology. The survey is based on a comparison of data from the three sets of respondents surveyed in spring of the 2009, 2010 and 2011, using the same questionnaire. Students, unaware of survey objectives, were asked to fill in questionnaires themselves and to distribute another part of the questionnaire to a member of their household, who is one generation elder (typically parents). In total, 455 households were interviewed, each producing two sets of answers to the survey questions.Results of the survey showed that younger respondents perceived the impact of the economic downturn in relation with expectations in a more casual way. They had higher expectations towards the income increase. Spending of both age groups, as well as their expectations towards prices were very similar throughout all the studied years. However, the older generation was more likely to save in order to survive, whereas the younger generation did not change its spending habits or decided to reduce spending for saving reasons.Practical implications. Since younger generation perceived the economic downturn situation more casually and reported a higher expected income, marketing strategies based on brand value, exclusivity, price premiums can be continued to target it even during the economic downturn. The older generation demonstrated a higher caution and frugality, as well as lower expectations towards income; therefore, value for price or lower price strategies could be more suitable for this age group.Value / originality. Longitudinal data on two age groups provide for a better understanding of the consumer behaviour during the economic downturn in general and in Lithuania in particular
PRODUCTIVITY SHOCKS, FOREIGN DIRECT INVESTMENT, AND CAPITAL TAXES
Get PDFThe present study deals with the effect that productivity and capital taxes have on foreign direct investment through a panel consisting of 41 countries utilising the GMM system on a dynamic spatial model. Evidence reveals that an increase in the domestic capital tax rate leads to less FDI inflows, and higher levels of domestic productivity growth lead to less FDI inflows. Foreign competition did not have a significant effect on domestic FDI inflows.The present study deals with the effect that productivity and capital taxes have on foreign direct investment through a panel consisting of 41 countries utilising the GMM system on a dynamic spatial model. Evidence reveals that an increase in the domestic capital tax rate leads to less FDI inflows, and higher levels of domestic productivity growth lead to less FDI inflows. Foreign competition did not have a significant effect on domestic FDI inflows
Demographic Shifts and their Consequences for the Investment Funds in the EU
Get PDFSolid theoretical reasons exist for the link between demographics and various economic, financial and social indicators. The aim of this article is to assess the influence of demographic shifts on investment fund flows in the EU from 1996 to 2013. In order to achieve this aim, a fixed effects model is constructed via panel regression and used to test the hypothesis as well as to derive conclusions. The authors hypothesise the presence of a statistically significant non-linear effect of demographic age shares on investment fund flows. The results are juxtaposed with a prior comparable research. This article is expected to benefit the financial sector and to provide guidance to market regulators
THE ROLE OF INVESTMENT PROMOTION AGENCIES IN ATTRACTING FOREIGN DIRECT INVESTMENT
Get PDFEstablishing an investment promotion agency (IPA) has become a very popular institutional approach in the strategic promotion of foreign direct investment (FDI) across nations and regions worldwide. In this article, we examine the role of IPAs in improving the FDI environment and promoting inward FDI. The task of the article is, with the help of qualitative methods of research, to determine the promotion techniques and tools that lead to a better FDI performance and verify them in the cases of such investment promotion agencies as Invest Lithuania and Invest in Lviv Region (Ukraine).Establishing an investment promotion agency (IPA) has become a very popular institutional approach in the strategic promotion of foreign direct investment (FDI) across nations and regions worldwide. In this article, we examine the role of IPAs in improving the FDI environment and promoting inward FDI. The task of the article is, with the help of qualitative methods of research, to determine the promotion techniques and tools that lead to a better FDI performance and verify them in the cases of such investment promotion agencies as Invest Lithuania and Invest in Lviv Region (Ukraine)
Labor Share Trends in Three Baltic Countries: Literature Review and Empirical Evidence
Get PDFLong-term stability of relative shares of production factors – labor and capital – was an implied fact for a long time. However, recently empirical data have become available, and several authors have presented a conclusive evidence showing a worldwide decline in labor share, which is especially manifested in Continental Europe.Despite the recent scientific interest in the stability of labor share, the trend analysis for small open economies such as the Baltic countries is very limited in the scientific literature. Therefore, this article aims at analyzing theoretical literature and empirical evidences on the changes in functional income distribution with the focus on the Baltic countries while also providing interpretations of the possible causes for this shift. Authors primarily focus on labor share trends in Lithuania, Latvia, and Estonia, while stressing the importance of the correct measurement of this indicator
THE MINIMUM INCOME SCHEME REFORM IN LITHUANIA
Get PDFThe article reviews the current social assistance scheme in Lithuania and its recent reform. The aim of this paper is to evaluate the scheme in three dimensions: coverage of poor people, adequacy of benefit amounts, and social assistance reconciliation with work incentives. The analysis of the minimum income protection reform is based mainly on the data from Survey of Income and Living Conditions and Administrative Data from the Ministry of Social Security and Labour. The paper discovers the changing role of the minimum income scheme in the context of an economic cycle, its targeting to low-income strata of the population and an adequate amount at least for families with children. However, the growing incentives of local authorities to reallocate funds envisaged for social assistance to other needs can erode the scheme. The article ends with several recommendations to policy makers.The article reviews the current social assistance scheme in Lithuania and its recent reform. The aim of this paper is to evaluate the scheme in three dimensions: coverage of poor people, adequacy of benefit amounts, and social assistance reconciliation with work incentives. The analysis of the minimum income protection reform is based mainly on the data from Survey of Income and Living Conditions and Administrative Data from the Ministry of Social Security and Labour. The paper discovers the changing role of the minimum income scheme in the context of an economic cycle, its targeting to low-income strata of the population and an adequate amount at least for families with children. However, the growing incentives of local authorities to reallocate funds envisaged for social assistance to other needs can erode the scheme. The article ends with several recommendations to policy makers