Problems of Asset Valuation in the Process of Bank Liquidation

Abstract

The aim of the article is to identify problematic issues of valuation of property (assets) of banks that are in the process of liquidation, and substantiate proposals for the desired solution, taking into account the need to protect the rights of bank creditors. Although the bankruptcy of banks causes significant economic and moral losses, the processes of removing insolvent banks from the market, their reorganization or liquidation are constantly taking place. Therefore, regulators and banks that have been declared insolvent face many questions, including the adequate valuation of banking assets and the determination of the liquidation estate. The article discusses approaches to asset valuation and features of their application in Ukrainian practice, as well as peculiarities of the sale of assets of banks in liquidation according to the Dutch auction model. It is noted that the imperfection of management of banks’ assets in the process of their functioning leads to discrepancies in the valuation of these low-quality assets in the liquidation procedure. It is determined that the ratio between the estimated value of assets and their book value for banks declared insolvent is on average 26.2 %, and the median value is 22.3 % This leads to a number of problems, including the inability of the Deposit Guarantee Fund (DGF) to ensure the repayment of part of the bank’s liabilities, which could be repaid in case of timely acceptance of tender offers at market value. It is noted that the most liquid assets, which are real estate and property, occupy an insignificant share in the structure of the liquidation mass – about 5 %, and the conversion rate in the sale of real estate quite often reaches 200 %. It is proposed, in accordance with European practice, to empower the Fund to monitor the assets of banks in the process of their functioning. The expediency of valuating assets not from the position of doing business «as usual» but from the point of view of the objective need to sell assets, focusing on the quick sale of assets at a market price, is emphasized. In order to improve the process of valuating the assets of an insolvent bank and focusing on the quick and transparent sale of the bank’s assets, it is proposed to implement the international experience of using loss-sharing agreements into domestic practice.

Keywords

• bankruptcy
• liquidation of banks
• sale of assets
• property valuation
• loan portfolio
• estimated value
• creditors
• dgf
• distribution of losses