Money management is an important and necessary component of the management system of a bank or an enterprise as a whole, ensuring the stability of their work in modern market conditions. The capital management model is a set of elements that include principles and management methods aimed at the formation of the optimal size and structure of capital, its effective use, and where the main criterion is the return on equity.
The principles on which any such model is based should include:
- level of inclusion in the overall management system;
- the systemic nature of decision making;
- flexibility, adaptability and dynamism of management;
- the multiplicity of managerial models;
- focus on the most important tasks of the development of an institution or enterprise;
- legal protection;
- management optimization, in which the return on equity becomes the main criterion for its effectiveness.
At the current stage of economic development, the main goal of capital management is the return on equity of the bank and ensuring financial stability and security in the long term, taking into account maximization of its market value.
Achieving this involves:
- the withdrawal of the bank to a functioning mode when the net return on equity and structure have reached optimal parameters;
- distribution of generated capital by type of use;
- creating an environment for achieving optimal return on equity, achieving maximum profitability with the expected level of risk;
- reduction of threats to financial risks with the planned level of its profitability;
- ensuring the financial balance of the bank;
- the necessary level of control by the founders;
- providing management flexibility;
- bringing capital productivity indicators in line with the profitability of equity;
- timely reinvestment of enterprise capital.
The control system includes the following subsystems:
- management of equity generated from both internal and external sources;
- management of borrowed capital raised using such internal sources as contributions of participants, issue of shares , etc .;
- organization of work with borrowed capital (bank, commodity loans, bond issues, etc.);
- structure optimization.
Bank money management is based on management strategies and tactics. The strategy can be represented as the main direction of the bank to achieve its goals. The capital management strategy should not contradict the general development strategy of the bank itself, since it is its component. The definition of capital management strategy must be carried out taking into account the peculiarities of its formation and use, environmental conditions, as well as the goals and directions of the bank. Consequently, the strategy of capital management should be focused on improving the basic indicators characterizing the effectiveness of the formation and functioning of capital, to help strengthen financial stability.
Management tactics involve the use of specific methods and techniques to achieve the goal in a specific situation, at a certain point in time.
Money management involves the use of two groups of tools:
1. External instruments are a set of certain levers at the macro level that affect the formation and use of capital at the micro level (state regulation of banks, the asset market, foreign exchange regulation; availability of credit resources).
2. Internal management tools aimed at improving the efficiency of use by optimizing the internal factors of the bank’s development, identifying hidden opportunities and reserves (capital formation strategy and targeted financial policy, methodology for choosing the optimal financing source, system of internal standards for certain aspects of capital formation, etc. .).
Thus, capital management involves the search and adoption of decisions that guarantee a given efficiency of its use, by influencing the size, profitability of equity, structure and sources of capital formation. At the same time, the capital management mechanism provides for: determining goals and objectives of management, control over their implementation; development of strategies and tactics of money management; the use of modern methods and models in the management process; timely analysis of capital efficiency and management optimization.