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Stress Testing of Retail and Corporate Segments of Russian Credit Market

Author

Listed:
  • Alexander M. Karminsky

    (Academic Department of Finance, National Research University Higher School of Economics, Russia)

  • Oleg S. Kozlov

    (EY, Assurance, Fraud Investigation and Dispute Services, Russia)

Abstract

The objective of the paper is to investigate and compare risk patterns in retail and corporate segments and assess the potential impact of macroeconomic shocks on loan quality. Banks’ monthly financial statements data for the period 2004 – 2012 are used. Firstly, we develop an indicator to measure institution’s credit risk that reflects variance and average value of NPL corrected for loan loss reserves. It is used to compare the risk-return patterns of largest state-owned banks, and under our framework we identify how the strategies of various banks differ in retail and corporate loans, identifying ‘safest’ and ‘riskiest’ institutions. Secondly, loan growth and credit risk sensitivity to macroeconomic shocks is analyzed using vector auto-regression. Macroeconomic shocks do not significantly increase NPL growth in the corporate segment. However, inflation and investment growth have a considerable impact on NPL growth in the retail segment (which is however almost three times less than the corporate). Based on these findings we conclude that there is no reason to expect rampant rise in corporate loan defaults in response to sudden changes in macroeconomic environment of Russia, though further growth of corporate loan segment increases credit risk, while the opposite is true about the retail sector.

Suggested Citation

  • Alexander M. Karminsky & Oleg S. Kozlov, 2015. "Stress Testing of Retail and Corporate Segments of Russian Credit Market," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 1(10), pages 7-19, September.
    • Handle: RePEc:mgs:ijmsba:v:1:y:2015:i:10:p:7-19
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    References listed on IDEAS

    as
    1. Ms. Li L Ong & Mr. Rodolfo Maino & Ms. Nombulelo Braiton, 2010. "Into the Great Unknown: Stress Testing with Weak Data," IMF Working Papers 2010/282, International Monetary Fund.
    2. Mr. Maria Soledad Martinez Peria & Mr. Giovanni Majnoni & Mr. Matthew T Jones & Mr. Winfrid Blaschke, 2001. "Stress Testing of Financial Systems: An Overview of Issues, Methodologies, and FSAP Experiences," IMF Working Papers 2001/088, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stress testing; Credit market; Russia; Non-performing loans; State banks;
    All these keywords.

    JEL classification:

    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General

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