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Risk-taking by Russian banks: Do location, ownership and size matter?

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Author Info
Fungácová , Zuzana () (BOFIT)
Solanko, Laura (BOFIT)

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Abstract

The Russian banking sector has experienced enormous growth rates during the last 6-7 years. The rapid growth of assets has, however, contributed to a decrease in the capital adequacy ratio, thus influencing the ability of banks to cope with risk. Using quarterly data spanning from 1999 to 2007 on all Russian banks, we investigate the relationship between bank characteristics and risk-taking by Russian banks. The analysis of financial ratios reveals that, on average, the risk levels are still below those observed in Central and Eastern Europe. Combining the group-wise comparisons of financial ratios and the results of insolvency risk analysis based on fixed effects vector decomposition, three main conclusions emerge. First, controlling for bank characteristics, large banks have higher insolvency risk than small ones. Second, foreign-owned banks exhibit higher insolvency risk than domestic banks and large state-controlled banks are, unlike other state-controlled banks, more stable. Third, we find that the regional banks engage in significantly more risk-taking than their counterparts in Moscow.

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Publisher Info
Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 21/2008.

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Length: 41 pages
Date of creation: 13 Jan 2009
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Handle: RePEc:hhs:bofitp:2008_021

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Related research
Keywords: bank risk-taking; banks in transition; Russia;

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Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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    Other versions:
  3. Gianni De Nicolo & Elena Loukoianova, 2007. "Bank ownership, market structure, and risk," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 377-3395.
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    Other versions:
  5. Jokipii, Terhi & Milne, Alistair, 2008. "The cyclical behaviour of European bank capital buffers," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1440-1451, August. [Downloadable!] (restricted)
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  15. John P. Bonin & Iftekhar Hasan & Paul Wachtel, 2004. "Privatization Matters: Bank Efficiency in Transition Countries," William Davidson Institute Working Papers Series 2004-679, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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