Level of Diversification, Its Influence on the Quality of the Credit Portfolio. The Example of the Russian Banks

This paper analyzes the variation of such indexes of the credit portfolio quality as risks and returns under the influence of the diversification. During the consideration of the investigations about the banking systems of other countries, it was found that the opinion about the classic positive impact of the method could be wrong. The developed models that were designed with the help of theoretical and practical studies and hypotheses can solve the existing problems for Russian credit organizations. The measure of diversification across industry has a positive impact on the level of returns and can reduce the credit risk. But, it would be better for banks to make their portfolio more concentrated using the measure across type of the borrower. Moreover, the non-monotonic correlation in risk between concentration and returns was found. The data includes the information about 70 Russian banks during the period from 2010 to 2015. It can be useful for the conducting of the credit portfolio management policy in banks of this country.