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«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
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.
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.
State banks performance: theoretical assumptions
DEVELOPMENT VIEW
POLITICAL VIEW
performance different from that of private banks;
variant strategic goals and management incentives;
inability to operate on purely commercial terms
…
VS
Research questions
«intermediation quality»of state banks’ activities
relative profitability of state banks
state banks’ risk-profile
assets and liabilities structure - focus:
key activities;
funds sources;
state-authorities’ and non-residents’ «intensity»
ROA; ROE; NIM;
Staff expenses/assets;
Assets income / Liabilities expenses
leverage; loan quality;
credit and liquidity risk prudential ratios
«Target» sample
Source: Vernikov, A.V. (2009), Russian Banking: The State Makes a Comeback? - BOFIT Discussion Paper No.24/2009, Bank of Finland.
Group-wise comparisons of:
«target» sample:
state-owned banks
state-governed banks
state-influenced banks
VS
«target» sample:
domestic and foreign private banking institutions
5774
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
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.
Figure 1. Government securities/ total assets, %
0
1
2
3
4
5
6
7
8
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state corp.non-ow n_gov.infl.
Figure 3. Interbank loans/ assets, %
0
5
10
15
20
25
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state corp.non-ow n_gov.infl.
Figure 6. The share of non-residentsin loans to non-banks, %
0
1
2
3
4
5
6
7
8
9
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state corp.non-ow n_gov.infl.
Figure 12. The share of non-residents intotal liabilities, %
0
10
20
30
40
50
60
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state corp.non-ow n_gov.infl.
Figure 5. The share of state authorities in total loansto non-banks, %
0
1
2
3
4
5
6
7
8
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state corp.non-ow n_gov.infl.
Figure 10. The share of state authoritiesin residents' accounts, %
0
1
2
3
4
5
6
7
8
9
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state corp.non-ow n_gov.infl.
Figure 9. Interbank loans/ total liabilities, %
0
1
2
3
4
5
6
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state corp.non-ow n_gov.infl.
Figure 14. Loan-to-deposit ratio, %
0%
500%
1000%
1500%
2000%
2500%
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state corp.non-ow n_gov.infl.
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.
Figure 15. ROA
0,0%
0,2%
0,4%
0,6%
0,8%
1,0%
1,2%
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
priv ate_domestic
priv ate_f oreignown_f ed.
own_sub-f ed.own_state corp.
non-own_gov .inf l.
Figure 16. ROE
0,0%
1,0%
2,0%
3,0%
4,0%
5,0%
6,0%
7,0%
8,0%
9,0%
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
priv ate_domestic
priv ate_f oreign
own_f ed.
own_sub-f ed.
own_state corp.
non-own_gov .
inf l.
Figure 17. NIM
0,0%
0,2%
0,4%
0,6%
0,8%
1,0%
1,2%
1,4%
1,6%
1,8%
2,0%
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
priv ate_domestic
priv ate_f oreign
own_f ed.
own_sub-f ed.
own_state corp.
non-own_gov .
inf l.
Figure 19. Assets income/ Liabilities expenses
0,0%
50,0%
100,0%
150,0%
200,0%
250,0%
300,0%
350,0%
400,0%
450,0%
500,0%
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
priv ate_domestic
priv ate_f oreign
own_f ed.
own_sub-f ed.
own_state corp.
non-own_gov .
inf l.
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.
Figure 22. NPLs / Loans(non-banking sector)
0%
1%
2%
3%
4%
5%
6%
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state.corp.non-ow n_gov.infl.
Figure 23. LLPs / Loans(non-banking sector)
0%
2%
4%
6%
8%
10%
12%
1 Q 2006 1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state.corp.non-ow n_gov.infl.
Figure 24. N7-ratio(large credit risks, %)
0
50
100
150
200
250
300
350
400
450
500
1 Q 2007 1 Q 2008 1 Q 2009
private_domesticprivate_foreignow n_fed.ow n_sub-fed.ow n_state.corp.non-ow n_gov.infl.
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 attentionThank you for your attention!!
References:
1. 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
2. Barth, J. R., Caprio, G., Levine, R. (2002), Bank Regulation and Supervision: What Works Best?, World Bank Working Paper 2725, http://econ.worldbank.org.
3. 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.
4. Bonin, J. P., Hasan, I., Wachtel, P. (2005b). Privatization matters: Bank Efficiency in Transition Countries, Journal of Banking and Finance, 29, pp. 2155–2178.
5. De Nicolo, G., Loukoianova, E. (2007), Bank Ownership, Market Structure and Risk, IMF Working Paper 07/215.
6. EBRD Transition Report (2006), Finance in transition, http://www.ebrd.com/ pubs/econo/6813.htm.
7. 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.
8. 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.
9. 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.
10. 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
References (2):
11. 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).
12. Haselmann, R., Wachtel, P. (2007), Risk Taking by Banks in the Transition Countries, Comparative Economic Studies 49, pp.411 – 429.
13. 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.
14. 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.
15. 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.
16. La Porta R., López-de-Silanes F., Shleifer A. (2002), Government ownership of banks // Journal of Finance, 57 (1), pp.265–301.
17. Maechler, A. M., Mitra, S., Worrell, D. (2007), Decomposing Financial Risks and Vulnerabilities in Eastern Europe, IMF Working Paper 07/248.
18. Sapienza, P. (2004), The Effects of Government Ownership on Bank Lending, Journal of Financial Economics, 72, pp. 357-384.
19. Styrin, K. (2005), What Explains Differences in Efficiency Across Russian Banks?, Economics Education and Research Consortium, Russia and CIS, Final report, Moscow.
20. Vernikov, A.V. (2007), Russia's banking sector transition: Where to?, BOFIT Discussion Paper No.5/2007, Bank of Finland.
21. 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).
22. Vernikov, A.V. (2009b), Russian Banking: The State Makes a Comeback? - BOFIT Discussion Paper No.24/2009, Bank of Finland.
Contacts:
Ekaterina Glushkova
Banking Department - Higher School of Economics, Moscow, Russia,