Net interest margin decomposition for the Russian banking industry

This study addresses the estimating interest rate risk in the banking book (IRRBB) faced by Russian banks amid key rate changes. We propose a methodological framework to decompose net interest margin to evaluate contributions of different asset and liability categories and idiosyncratic, price, and weight effects to IRRBB. Using a sample of 315 banks, we employ linear regression models to evaluate interest income for asset and interest expenses for liability categories. Statistical significance is assessed using block bootstrap with 1000 resamples. The main result of this study is the development of a methodology for assessing the contributions of different asset and liability categories to IRRBB. Our findings indicate that banks tend to adopt strategic rather than tactical responses to crises. However, systematically important financial institutions (SIFIs) tactically adjust their liability structures to mitigate unexpected key rate movements. This was particularly evident during the COVID-19 pandemic, when, despite a declining key rate, SIFIs maintained a net positive price contribution of 1.645 bp per quarter.