Macroeconomic and bank-specific determinants of credit risk: evidence from Russia

During the global financial crisis, the Russian banking system has experienced a significant increase in nonperforming loans. The Russian government has carried out massive recapitalization of major banks to maintain their stability. To evaluate the effectiveness of this policy it is necessary to identify the drivers of the credit risk increase in the affected banks. The main purpose of this research is to disentangle the influence of macroeconomic and bank?specific factors that led to the increase in the nonperforming loans of Russian banks. To address this research question we use both panel data econometrics and multivariate statistical analysis in order to mutually verify the results obtained using different methods. We find that most of the negative influence on the loan quality of the median Russian bank came from the deterioration of macroeconomic conditions. At the same time about 10 percent of banks were themselves to blame in a sharp increase in nonperforming loan ratio during the 2008 crisis. The obtained results have strong policy implications and highlight the importance of macroprudential regulation for enhancing financial stability of the Russian banking sector.