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« Effectiveness of Russian state banks as financial intermediaries »

« Effectiveness of Russian state banks as financial intermediaries ». Ekaterina Glushkova , Banking Department, Higher School of Economics, Moscow. Efficiency of state banks: empirical findings on transition countries.

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« Effectiveness of Russian state banks as financial intermediaries »

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  1. «Effectiveness of Russian state banks as financial intermediaries» Ekaterina Glushkova, Banking Department, Higher School of Economics, Moscow

  2. Efficiency of state banks: empirical findings on transition countries Bonin, Hasan, Wachtel [2005]: government-owned banks are less efficient than domestic private banks but not significantly so; Kraft, Hofler and Payne [2006]: green-field private and privatized banks are not more efficient than public banks, privatization does not immediately improve efficiency, while foreign banks are substantially more efficient than all domestic banks; Russia: Fries, Taci [2005]: foreign ownership and private ownership are both associated with greater efficiency; Styrin [2005]: Russian banks affiliated with the state are not either more or less cost-efficient, other things equal, greater efficiency of foreign banks concluded, whereas public ownership is not significant for explaining efficiency; Karas et al. [2010]: in the Russian banking market foreign banks are more efficient than domestic private banks, but domestic private banks are not more efficient than public banks.

  3. Motivation controversial findings of panel-data estimates on transition countries; little research devoted to the analysis of the issue with regard to Russian banking industry; thus, demand in a more in-depth analysis.

  4. State banks performance: theoretical assumptions DEVELOPMENT VIEW POLITICAL VIEW VS • performance different from that of private banks; • variant strategic goals and management incentives; • inability to operate on purely commercial terms • …

  5. Researchquestions • assets and liabilities structure - focus: • key activities; • funds sources; • state-authorities’ and non-residents’ «intensity» «intermediation quality» of state banks’ activities • ROA; • ROE; • NIM; • Staff expenses/assets; • Assets income / Liabilities expenses relative profitability of state banks • leverage; • loan quality; • credit and liquidity risk prudential ratios state banks’ risk-profile

  6. «Target»sample Source: Vernikov, A.V. (2009), Russian Banking: The State Makes a Comeback? - BOFIT Discussion Paper No.24/2009, Bank of Finland.

  7. Group-wise comparisons of: «target» sample: 57 74 «target» sample: state-owned banks state-governed banks state-influenced banks VS domestic and foreign private banking institutions

  8. Data: Statistics: Interfax agency quarterly (balance sheet and P&L-based) bank-level data : 1 Quarter 2006 – 1 Quarter 2009 13 observations for each sampled bank

  9. Results: intermediation measures State-owned banks ~ foreign banks: willingly invest in government (and non-government) securities; exhibit relatively high share of interbank loans in total assets; enjoy continuing growth of the proportion of loans to non-residents in total loans, high non-residents’ share in assets and liabilities. but: still enjoy high share of public authorities in total loans to non-banks; high share of the state in residents’ deposits, current and settlement accounts; are much less dependent on interbank loans as the source of funds compared to private banks (both domestic and foreign); exhibit much lower «loan-to-deposit» ratio than private banks (both domestic and foreign. !!! These trends majorly relate to the sub-category of banks with direct state ownership at federal level, while other state-connected banks in most cases do not significantly differ from national private institutions.

  10. Results: profitability ! State-connected banks are definitely not more efficient than either banks with foreign ownership or national private banks: much lower ROA (with directly state-owned banks at federal and sub-federal level being the least efficient); the efficiency gap is less solid in terms of ROE; in terms of NIMs national private banks are the most efficient (even compared to foreign-owned banks) while the latter do not substantially differ from all groups of state-connected banks; on average are less efficient than private banks in terms of the extent to which the overall expenditures on liabilities are covered by total income on assets.

  11. Results: risk characteristics ! State banks: on average exhibit quite similar level of credit risk in terms of the share of NPLs to that of their private peers: while: the NPLs share ratio substantially differs within the group of state-connected banks; the proportion of loan-loss provisions in total loans is much lower for banks with state ownership; do not significantly differ from private peers in terms of large credit risk.

  12. Conclusions and further research: Findings are rather mixed and in some cases significantly differ from the previous studies of the issue => further investigation needed. Directions for future research: at micro level: factors affecting the differences in operating efficiency and other performance indicators of Russian banks with respect to ownership structure; at macro level: the impact of state presence on the depth of financial intermediation and stability of the banking sector. Thank you for your attention!

  13. References: Andrews, A. M. (2005), State-Owned Banks, Stability, Privatization, and Growth: Practical Policy Decisions in a World Without Empirical Proof, IMF Working Paper № WP/05/10, January 2005, www.imf.org Barth, J. R., Caprio, G., Levine, R. (2002), Bank Regulation and Supervision: What Works Best?, World Bank Working Paper 2725, http://econ.worldbank.org. Bonin, J. P., Hasan, I., Wachtel, P. (2005a), Bank Performance, Efficiency and Ownership in Transition Countries, Journal of Banking and Finance, 29, pp. 31–53. Bonin, J. P., Hasan, I., Wachtel, P. (2005b). Privatization matters: Bank Efficiency in Transition Countries, Journal of Banking and Finance, 29, pp. 2155–2178. De Nicolo, G., Loukoianova, E. (2007), Bank Ownership, Market Structure and Risk, IMF Working Paper 07/215. EBRD Transition Report (2006), Finance in transition, http://www.ebrd.com/ pubs/econo/6813.htm. Fries, S., Taci, A. (2005), Cost Efficiency of Banks in Transition: Evidence from 289 Banks in 15 Post-Communist Countries, Journal of Banking and Finance, 29, pp.55–81. Fungacova, Z., Poghosyan T. (2009), Determinants of Bank Interest Margins in Russia: Does Bank Ownership Matter?, BOFIT Discussion Paper No.22/2009, Bank of Finland. Fungacova, Z., Solanko L. (2008), Risk-Taking by Russian Banks: Do Location, Ownership and Size Matter? - BOFIT Discussion Paper No.21/2008, Bank of Finland. Glushkova E., Vernikov А. (2009), How big is the visible hand of the state in the Russian banking industry? - MPRA Paper No. 15563, June 2009. Munich University Library. http://mpra.ub.unimuenchen.de/15563

  14. References (2): Glushkova E. (2009), Granitsi gosudarstvennogo sektora v bankovskoi sisteme (The boundaries of public sector in the banking industry), Bankovskoye delo, 8/2009, pp.34-37 (in Russian). Haselmann, R., Wachtel, P. (2007), Risk Taking by Banks in the Transition Countries, Comparative Economic Studies 49, pp.411 – 429. Iannotta, G., Nocera G., Sironi, A. (2007), Ownership Structure, Risk and Performance in the European Banking Industry, Journal of Banking and Finance, 31, pp.2127-2149. Karas, Alexei, Koen Schoors and Laurent Weill (2010), Are Private Banks More Efficient than Public Banks? Evidence from Russia, The Economics of Transition, 18/1, pp.209-244. Kraft, E., Hofler, R., Payne, J. (2006), Privatization, Foreign Bank Entry and Bank Efficiency in Croatia: a Fourier-Flexible Function Stochastic Cost Frontier Analysis, Applied Economics, 38, pp.2075-2088. La Porta R., López-de-Silanes F., Shleifer A. (2002), Government ownership of banks // Journal of Finance, 57 (1), pp.265–301. Maechler, A. M., Mitra, S., Worrell, D. (2007), Decomposing Financial Risks and Vulnerabilities in Eastern Europe, IMF Working Paper 07/248. Sapienza, P. (2004), The Effects of Government Ownership on Bank Lending, Journal of Financial Economics, 72, pp. 357-384. Styrin, K. (2005), What Explains Differences in Efficiency Across Russian Banks?, Economics Education and Research Consortium, Russia and CIS, Final report, Moscow. Vernikov, A.V. (2007), Russia's banking sector transition: Where to?, BOFIT Discussion Paper No.5/2007, Bank of Finland. Vernikov, A.V. (2009a), Dolya gosudarstvennogo uchastiya v bankovskoi sisteme Rossii (Assessing government participation in Russian banking system), Dengi i Kredit, 11/2009, pp.4-14 (in Russian). Vernikov, A.V. (2009b), Russian Banking: The State Makes a Comeback? - BOFIT Discussion Paper No.24/2009, Bank of Finland.

  15. Contacts: Ekaterina Glushkova Banking Department - Higher School of Economics, Moscow, Russia, katia_glushkova@mail.ru

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