Measuring Probablity of Bankruptcy in Russian Banking System

The problem of instability of financial organizations negatively affects situation in the whole economy. In recent years a huge increase in bank bankruptcies is observed in Russia. (By the term bankruptcy license deprivation by Russian Central Bank is meant.) This situation shows that the number of weak organizations is sufficiently high, that makes economy fragile and raises the need to control these organizations mote thoroughly. This work provides analysis for determining most important factors that influence probability of bank bankruptcy in Russian banking system. Based on these factors the logistic regression model is constructed that is further used for predicting probabilities of default. Data used for model construction includes observations from period 2012 – 2014. Russian economy is very unstable and it changes a lot. Longer time period is not taken to allow the model catch factors that are important today. Results suggest that not only financial ratios play important role in bank performance, but also macroeconomic conditions should be paid high attention. The two most influential parameters for Russian bank probability of default are the ratio of loans to individuals and individual businesses to net assets and oil price. Geopolitical situation introduced as a dummy variable showed significant results, however, marginal effect for this parameter is low. Data balancing showed to improve the quality of the model a lot. After testing the model on 2015 year good predictability results were obtained. At the end of this work list of banks sorted according to their exposure to default risk is provided.