Impacts of Credit Risk on the Financial Performance of Commercial Banks in Russia

This study examines the impact of credit risk on the financial performance of 80 Russian commercial banks for the period 2015 to 2019. Non-performing loans (NPLs) represent credit risk and return on assets (ROA) or return on equity (ROE) representing financial performance. The pooled ordinary least squares (pooled OLS) regression was utilized, followed by a fixed-effects model (FEM) and a random-effects model (REM). The main result that the study achieved is that credit risk has a negative impact on the commercial banks' financial performance. The author also finds the factors affecting the credit risk. Besides, the study shows other negative relationships to financial performance such as leverage, bank size, inflation rate, unemployment rate, and exchange rate. Only interest rate is proportional to financial performance. Therefore, through the researched results, this study proposed several solutions for banks, bank managers, and the Government to develop appropriate policies to limit credit risk and improve banks' financial performance in particular and the economy in general.