Does Higher Competition Lead to Lower Probability of License Withdrawal in Russian Banking Sector?

The purpose of the study is to identify whether there is a connection between competition in banking sector and banks’ license withdrawal, and to discover type of this connection if it exists in the sample (whether it is positive, negative or non – linear). The sample includes data about Russian commercial banks for the period from July 2013 to January 2020. The research shows that default probability depends on competition on the loan market non – linearly, inversely U-shaped, and that applying concentration ratio CR5 of loans gives a better model than applying other competition measures considered. The result implies, firstly, that when banking system is close to monopoly, no more banks’ licenses are withdrawn, secondly, that high competition in banking provides banks with low default probability. Also, the analysis shows that Russian banking sector has become more concentrated, therefore, less competitive, and that government’s involvement has increased in Russian banking system.