Determinants of the Credit Risk of Commercial Banks: Evidence from Russia

This paper examines the drivers of credit risk at the ex-post stage (after granting the loan). The purpose of this work is to disentangle macroeconomic and bank-specific determinants that affect the quality of the commercial banks' loan portfolio. The ratio of the share of overdue loans to total loans was chosen as the main approximating indicator of credit risk; The second proxy variable was the ratio of LLP to total loans. The analysis was carried out on panel data for 626 Russian commercial banks in the period from 2012 to 2015. By the usage fixed effects model it was managed to identify the impact of the bi-currency basket and GDP growth on the quality of the loan portfolio; Among the indicators related directly to banking activities, it was determined the influence of the size of the bank and the share of liquid assets on the quality of the loan portfolio, as well as to test the "moral hazard", "skimming" and "inefficient management" hypotheses that were first formulated by (Berger DeYoung , 1997). With the help of the correlated random effects model it was managed to identify the tendency of state and systemically important banks to credit risk. The results can be useful for the Bank of Russia in the field of monitoring credit risk, in particular, for carrying out stress tests and creating tools for forecasting credit risk. The structure of this publication is following: introduction, two Chapters, conclusion, list of literature and three annexes. Scope of work - 56 pages; The work contains 10 author's tables and 7 author's drawings; Number of sources used is 35.