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Failure prediction in the Russian bank sector with logit and trait recognition models

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Author Info

  • G. LANINE

    ()

  • R. VANDER VENNET

    ()

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    Abstract

    The Russian banking sector experienced considerable turmoil in the late 1990s, especially around the Russian banking crisis in 1998. The question is what types of banks are vulnerable to shocks and whether or not bank-specific characteristics can be used to predict vulnerability to failures. In this study we employ a parametric logit model and a nonparametric trait recognition approach to predict failures among Russian commercial banks. We test the predictive power of both models based on their prediction accuracy using holdout samples. Both models performed better than the benchmark; the trait recognition approach outperformed logit in both the original and the holdout samples. As expected liquidity plays an important role in bank failure prediction, but also asset quality and capital adequacy turn out to be important determinants of failure.

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    File URL: http://www.FEB.UGent.be/nl/Ondz/wp/Papers/wp_05_329.pdf
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    Bibliographic Info

    Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 05/329.

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    Length: 36 pages
    Date of creation: Aug 2005
    Date of revision:
    Handle: RePEc:rug:rugwps:05/329

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    Related research

    Keywords: Russian banks; bank failure prediction; logit model; trait recognition; forecasting accuracy;

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    References

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    1. Sophie Claeys, & Gleb Lanine & Koen Schoors, 2005. "Bank Supervision Russian style: Rules versus Enforcement and Tacit Objectives," William Davidson Institute Working Papers Series wp778, William Davidson Institute at the University of Michigan.
    2. M. Vanhoucke & D. Debels, 2005. "The Discrete Time/Cost Trade-Off Problem Under Various Assumptions Exact And Heuristic Procedures," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/314, Ghent University, Faculty of Economics and Business Administration.
    3. M. Vanhoucke & S. Vandevoorde, 2005. "A simulation and evaluation of earned value metrics to forecast the project duration," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/317, Ghent University, Faculty of Economics and Business Administration.
    4. G. Poels & A. Maes & F. Gailly, 2005. "User Attitudes towards Pattern-Based Enterprise Information Models: A Replicated Experiment with REA Diagrams," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/315, Ghent University, Faculty of Economics and Business Administration.
    5. Vermeir,I. & Geuens, M., 2006. "Need for closure and youngsters' leisure time preferences," Vlerick Leuven Gent Management School Working Paper Series 2005-36, Vlerick Leuven Gent Management School.
    6. A. Heirman & B. Clarysse, 2005. "The imprinting effect of initial resources and market strategy on the early growth path of start-Ups," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/310, Ghent University, Faculty of Economics and Business Administration.
    7. S. CLAEYS & G. LANINE & K. SCHOORs, 2005. "Bank Supervision Russian Style: Rules vs Enforcement and Tacit Objectives," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/307, Ghent University, Faculty of Economics and Business Administration.
    8. Vandevoorde, S. & Vanhoucke, M., 2005. "A comparison of different project duration forecasting methods using earned value metrics," Vlerick Leuven Gent Management School Working Paper Series 2005-16, Vlerick Leuven Gent Management School.
    9. A. Maes & G. Poels & F. Gailly & R. Paemeleire, 2005. "Measuring User Beliefs and Attitudes towards Conceptual Models: A Factor and Structural Equation Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/311, Ghent University, Faculty of Economics and Business Administration.
    10. B. Maenhout & M. Vanhoucke, 2005. "An Electromagnetic Meta-Heuristic for the Nurse Scheduling Problem," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/316, Ghent University, Faculty of Economics and Business Administration.
    11. P. Everaert & G. Sarens, 2005. "Outsourcing bij Vlaamse Ondernemingen: een Exploratief Onderzoek," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/306, Ghent University, Faculty of Economics and Business Administration.
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    Cited by:
    1. J. Lepoutre & N. A. Dentchev & A. Heene, 2005. "Dealing With Uncertainties When Governing CSR Policies," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/337, Ghent University, Faculty of Economics and Business Administration.
    2. W. Bruggeman & P. Everaert & S. R. Anderson & Y. Levant, 2005. "Modeling Logistics Costs using Time-Driven ABC: A Case in a Distribution Company," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/332, Ghent University, Faculty of Economics and Business Administration.
    3. N. Geeroms & P. Van Kenhove & W. Verbeke, 2005. "Health Advertising to promote Fruit and Vegetable Intake: Application of need-related Health Audience Segmentation," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/336, Ghent University, Faculty of Economics and Business Administration.
    4. Maenhout, B. & Vanhoucke, M., 2006. "New computational results for the nurse scheduling problem: A scatter search algorithm," Vlerick Leuven Gent Management School Working Paper Series 2006-06, Vlerick Leuven Gent Management School.
    5. P. Windels & J. Christiaens, 2005. "Management Reform in Flemish Local Authorities: Testing the Institutional Framework," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/331, Ghent University, Faculty of Economics and Business Administration.
    6. Maarten Dossche & Gerdie Everaert, 2005. "Measuring Inflation Persistence: A Structural Time Series Approach," Computing in Economics and Finance 2005 459, Society for Computational Economics.
    7. J. Albrecht & M. Neyt & T. Verbeke, 2005. "Bureaucratisation and the growth of health care expenditures in Europe," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/335, Ghent University, Faculty of Economics and Business Administration.
    8. M. Vanhoucke & B. Maenhout, 2005. "Characterisation and Generation of Nurse Scheduling Problem Instances," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/339, Ghent University, Faculty of Economics and Business Administration.
    9. L. Pozzi, 2005. "Income Uncertainty and Aggregate Consumption," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/334, Ghent University, Faculty of Economics and Business Administration.
    10. Ooghe, H. & Spaenjers, C. & Pieter vandermoere, 2005. "Business failure prediction: simple-intuitive models versus statistical models," Vlerick Leuven Gent Management School Working Paper Series 2005-22, Vlerick Leuven Gent Management School.
    11. W. Buckinx & D. Van Den Poel, 2005. "Assessing and exploiting the profit function by modeling the net impact of targeted marketing," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/330, Ghent University, Faculty of Economics and Business Administration.
    12. E. Labro & M. Vanhoucke, 2005. "A simulation analysis of interactions between errors in costing system design," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 05/333, Ghent University, Faculty of Economics and Business Administration.

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