Liquidity Risk Correlation with Net Interest Margin for Russian Banks

This paper is concentrated on liquidity risk, its measures and measures of premium for this risk in the banking sector of Russian Federation. Main objectives of this paper study are: 1) Review which top Russian banks (if there are such) are now at critical level of liquidity and 2) outline whether liquidity risk premium is present in banking sector of Russian Federation or not. For these purposes 4 codes in R-Studio and 2 codes in Java were written. Data sample consists of 574 Russian banks with the 10-year timeline from 2007 and up to 2017. After data filtering, 166 banks were left, for each of which Net Interest Margin as well as risk measurements were calculated. Six Regressions were then estimated with the usage of panel data, from which Least Squares and Least Squares Dummy variable models were outlined as the most appropriate. Regression took Net Interest Margin as a dependent variable and risk measures as explanatory. If premium for liquidity risk does really exist, then significance of those explanatory variables will be observed. Tests were conducted in order to make sure that our data meets all the requirements for panel data to be used in regression analysis. The results are that Liquidity Coverage Ratio, which accounts for short-term liquidity, is significant, while Net Stable Funding Ratio, which is considered as long-term measure, is insignificant. In such a manner, it can be judged that risk premium for liquidity risk does exist in Russian banking sector; however, only for short-term liquidity risk. As for current liquidity position of top Russian banks, they are at most ready to meet requirements, listed in Basel III.