« 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.
«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 : government-owned banks are less efficient than domestic private banks but not significantly so;
Kraft, Hofler and Payne : 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;
Fries, Taci : foreign ownership and private ownership are both associated with greater efficiency;
Styrin : 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. : 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.
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
of state banks’ activities
of state banks
state banks’ risk-profile
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:
domestic and foreign
private banking institutions
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.
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.
! 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.
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:
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.
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!
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Banking Department - Higher School of Economics, Moscow, Russia,