Mathematical model of optimizing the balance sheet structure of the russian banking system with allowance for the foreign exchange risk levels

Abstract

Under present-day conditions of significant national currency fluctuations in the Russian Federation, a search for effective methods of foreign exchange risk management in the banking system is being updated. In this regard, development of a mathematical model for optimizing the asset and liability structure in Russian banks with allowance for the foreign exchange risk was the goal of the research. Using a method of regression analysis, a mathematical model has been developed to optimize the balance sheet structure of the banking system based on determining the dependence of net profit on asset and liability figures of the balance sheet, whereby the profit and profitability of banking in foreign currency is maximized. This mathematical optimization model was based on the permissible foreign exchange risk level standards in banking. Statutory financial reporting data of the Russian banking system in the aggregate denominated in foreign exchange (in ruble equivalent) for the period from 01.10.2010 to 01.02.2019 and disaggregated by months were used. The model results for the last three years were compared with the actual data. The model results can help optimize efficient allocation of resources and improve banking foreign exchange risk management policies.