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Firms, Banks and Credit in Russia

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  • Q. Fan
  • U. Lee
  • M.E. Schaffer

Abstract

This paper provides an empirical analysis of the relations between industrial enterprises and the banks in Russia from the perspective of enterprises, using data from a World Bank survey of 439 large and medium industrial Russian enterprises conducted in mid-1994. The paper finds evidence of a large "bad debt" problem in the Russian banking sector: one quarter or more of bank debt is overdue, and it was very common for the firms in the survey to fall into arrears with their banks. The nearly universal outcome in such cases was the capitalization of overdue interest and the rescheduling of principal. There are, moreover, signs of adverse selection operating, with firms that do hold bank debt tending to be financially less healthy than the average across a wide range of measures . However, there are also signs of positive developments in the Russian banking sector. The ease of obtaining bank credit is positively related to the creditworthiness of the borrower, a sign that banks at least sometimes evaluate the creditworthiness of their customers when making lending decisions. The paper also finds, somewhat surprisingly, no significant evidence of insider lending: although the number of enterprises which hold shares in banks is significant (about half of the firms in the survey), most enterprises are only minority shareholders and there is no apparent impact of shareholding on credit allocation.

Suggested Citation

  • Q. Fan & U. Lee & M.E. Schaffer, 1996. "Firms, Banks and Credit in Russia," CERT Discussion Papers 9609, Centre for Economic Reform and Transformation, Heriot Watt University.
  • Handle: RePEc:hwe:certdp:9609
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    References listed on IDEAS

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    1. Pinto, Brian & van Wijnbergen, Sweder, 1994. "Ownership and corporate control in Poland : why state firms defied the odds," Policy Research Working Paper Series 1308, The World Bank.
    2. G. Alfandari & M.E. Schaffer, 1996. ""Arrears" in the Russian Enterprise Sector," CERT Discussion Papers 9608, Centre for Economic Reform and Transformation, Heriot Watt University.
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    Cited by:

    1. Budina, Nina & Garretsen, Harry & Jong, Eelke de, 1999. "Liquidity constraints and investment in transition economies : the case of Bulgaria," Research Report 00E05, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    2. Alan Bevan & Saul Estrin & Mark E. Schaffer, 1999. "Determinants of Enterprise Performance during Transition," CERT Discussion Papers 9903, Centre for Economic Reform and Transformation, Heriot Watt University.
    3. Hainz, Christa, 2003. "Bank competition and credit markets in transition economies," Journal of Comparative Economics, Elsevier, vol. 31(2), pages 223-245, June.
    4. repec:dgr:rugsom:00e05 is not listed on IDEAS
    5. Commander, Simon & Dolinskaya, Irina & Mumssen, Christian, 2002. "Determinants of barter in Russia: an empirical analysis," Journal of Development Economics, Elsevier, vol. 67(2), pages 275-307, April.
    6. A. Richter & M.E. Schaffer, 1996. "The Performance of De Novo Private Firms in Russian Manufacturing," CERT Discussion Papers 9610, Centre for Economic Reform and Transformation, Heriot Watt University.

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