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

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  • Fungáčová, Zuzana
  • Solanko, Laura

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. JEL Classification: G21, G32, P34 Keywords: bank risk-taking, banks in transition, Russia

Suggested Citation

  • Fungáčová, Zuzana & Solanko, Laura, 2008. "Risk-taking by Russian banks : do location, ownership and size matter?," BOFIT Discussion Papers 21/2008, Bank of Finland, Institute for Economies in Transition.
  • Handle: RePEc:bof:bofitp:2008_021
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    Cited by:

    1. Boulanouar, Zakaria & Alqahtani, Faisal & Hamdi, Besma, 2021. "Bank ownership, institutional quality and financial stability: evidence from the GCC region," Pacific-Basin Finance Journal, Elsevier, vol. 66(C).
    2. Belousova, Veronika & Karminsky, Alexander & Kozyr, Ilya, 2018. "Bank ownership and profit efficiency of Russian banks," BOFIT Discussion Papers 5/2018, Bank of Finland, Institute for Economies in Transition.
    3. Janda, Karel & Kravtsov, Oleg, 2017. "Micro-Level Evidences of Moral Hazard in the European Financial Institutions," MPRA Paper 77233, University Library of Munich, Germany.
    4. Georgios P. Kouretas & Chris Tsoumas, 2013. "Bank Risk-Taking in CEE Countries," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 5(2), pages 103-123, June.
    5. Alexander Karminsky & Alexander Kostrov, 2014. "The probability of default in Russian banking," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(1), pages 81-98, June.
    6. Berger, Allen N. & Hasan, Iftekhar & Korhonen, Iikka & Zhou, Mingming, 2010. "Does diversification increase or decrease bank risk and performance? : Evidence on diversification and the risk-return tradeoff in banking," BOFIT Discussion Papers 9/2010, Bank of Finland, Institute for Economies in Transition.
    7. Fungáčová Z. & Solanko L., 2009. "Risk-taking by Russian banks: do location, ownership and size matter?," Higher School of Economics Economic Journal Экономический журнал Высшей школы экономики, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 13(1), pages 101-129.
    8. repec:spr:pharme:v:4:y:2014:i:1:p:81-98 is not listed on IDEAS
    9. Mäkinen, Mikko & Solanko, Laura, 2017. "Determinants of bank closures : Do changes of CAMEL variables matter?," BOFIT Discussion Papers 16/2017, Bank of Finland, Institute for Economies in Transition.
    10. Zheng, Changjun & Moudud-Ul-Huq, Syed & Rahman, Mohammad Morshedur & Ashraf, Badar Nadeem, 2017. "Does the ownership structure matter for banks’ capital regulation and risk-taking behavior? Empirical evidence from a developing country," Research in International Business and Finance, Elsevier, vol. 42(C), pages 404-421.
    11. Tuuli Juurikkala & Alexei Karas & Laura Solanko, 2011. "The Role of Banks in Monetary Policy Transmission: Empirical Evidence from Russia," Review of International Economics, Wiley Blackwell, vol. 19(1), pages 109-121, February.
    12. Козлова Антонина Алексеевна & Семенова Мария Владимировна, 2017. "Влияет Ли Название На Рыночную Дисциплину: Пример Иностранных Банков В России," Higher School of Economics Economic Journal Экономический журнал Высшей школы экономики, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 21(1), pages 66-88.
    13. Denis Shibitov & Mariam Mamedli, 2019. "The finer points of model comparison in machine learning: forecasting based on russian banks’ data," Bank of Russia Working Paper Series wps43, Bank of Russia.
    14. Belousova, Veronika & Karminsky, Alexander & Kozyr, Ilya, 2018. "The macroeconomic and institutional determinants of the profit efficiency frontier for Russian banks," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 49, pages 91-114.
    15. Mikko Makinen & Laura Solanko, 2018. "Determinants of Bank Closures: Do Levels or Changes of CAMEL Variables Matter?," Russian Journal of Money and Finance, Bank of Russia, vol. 77(2), pages 3-21, June.

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    More about this item

    Keywords

    bank risk-taking; banks in transition; russia;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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