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Determinants Influencing the Profitability and Probability of License Withdrawal of Russian Commercial Banks

Student: Ekaterina Trapeznikova

Supervisor: Nikolay Pilnik

Faculty: International College of Economics and Finance

Educational Programme: Financial Economics (Master)

Year of Graduation: 2016

The paper is devoted to the factors that influence Russian commercial banks' performance. More precisely, we analyze banks' profi tability and the probability of their license withdrawal. Commercial banks have a big influence on other economic agents, as well as on the economic situation of the country in general. That is why a healthy and sustainable banking system is an important condition for the country's welfare and prosperity. The research is mostly up-to-date and applied to the contemporary economic situation in Russia. The sample for the analysis includes 1255 Russian banks during the period 2004 -2015. Panel data regressions and logit models are used for the analysis. Because the considered period is quite long and not homogeneous from the economic point of view, we include three groups of independent variables into the model. The first one contains banks speci c factors, which vary from bank to bank. The second one includes dummy variables to take into account crisis period of 2007-2009. The last group of variables includes macroeconomic variables. We got diff erent results for various phases of economic cycle. In non-crisis periods the share of loans in total assets, capital and size have a positive eff ect on profi tability. In crisis times the eff ect of loans is negative, and the eff ect of capital and reserves for possible losses has the same sign, but is stronger. Macroeconomic variables that we included into the analysis were found to be signi cant, their influence is consistent with logic. As for the probability of license withdrawal, we got a positive eff ect of reserves for possible losses, the share of loans in total assets, as well as size. Most results are consistent with the risk-return trade-off , and larger profi tability is accompanied by higher probability of license withdrawal.

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