Measuring probability of default in Russian banking system - Дипломная работа

Федеральное государственное автономное образовательное учреждение Высшего профессионального образования «Национальный исследовательский университет «Высшая школа экономики» Международный институт экономики и финансов Выпускная квалификационная работа - Бакалаврская работа по направлению подготовки 38.03.01 «Экономика» образовательная программа «Программа двух дипломов по экономике НИУ ВШЭ и Лондонского университета» Оценка вероятности банкротства российских банков Measuring probability of default in Russian banking system Кузнецова Ольга Андреевна Рецензент PhD, доцент А.А. Сирченко Научный руководитель К.э.н, доцент В.К. Шпрингель Москва 2016 Contents Introduction Basic concepts about banks and risks in banking system Macroeconomic concepts and their basic overview for Russia Previous studies Methodology Data description Factors influencing bank probability of default Profitability measures Credit risk Liquidity Operating efficiency Determine factors that will be included in the model Model construction Testing the models Prediction on possible bankruptcies Conclusion Bibliography Appendix 1 Appendix 2 Appendix 3 Introduction Banking system is one of the core elements of the whole financial system. The stability of banks and their constant development bring positive results to the economy of particular country. Russian banking system is considered to be quite young. It does not have much experience and demands elaboration to rich high level of development. For well-functioning the favourable conditions should be present and a sufficient level of control should be made. Problems systematically appearing to the banks suggest hurt the whole system and show that some changes should be done. In resent years an increasing quantity of Russian banks are becoming bankrupt. By the term bankruptcy the license deprivation by Russian Central Bank is meant. Such situation hurts the economy and results in huge costs associated with bank defaults. Social marginal costs associated with defaults of banks are much higher than private ones, since a failure hurts bank customers, other commercial banks and the whole economy (Gwilym, 2011). Increasing number of defaults makes the economy more fragile and more sensitive to shocks. Effectiveness of the economy depends on many factors, and banking system is one of the most influential. This means that lower stability in banking sector places sufficient risk for economy as a whole. Measuring probability of default (PD) is helpful for looking at bank exposure to risk, namely - to credit risk. This in turn may signal that a particular bank requires stronger regulation. Moreover, probability of default plays a crucial role in risk management process and helps to analyse how particular actions and characteristics of the bank influence its stability. Earlier determinants of bankruptcy risks enable to react rapidly and to take steps for improvement. Knowledge about such parameter as PD is useful not only for the bank itself. Creditors of the bank observe this characteristic in order to decide whether to put money in that particular bank or not and what risk premium should they accept if they decide to put funds in that bank. Higher risks make individuals less willing to put money in a bank, as a result financial organisation experiences lack of funds. This means that smaller amount of loans will be accepted. As a result, economy slows down. It is important to provide sufficient regulations and to determine weak banking organisations before they become insolvent in order to put more severe restrictions on them and to lower probability of default. However, it is problematic to carry out high control for numerous financial organizations that exist in Russian federation. That is why it is important to develop models that will be used to determine what bank needs to be paid a higher attention and which one is absolutely well functioning, so that there is no since to lose much time for its control. Many researches have been conducted with the aim to measure probability of bank bankruptcy. However, most of them were constructing models based on information on foreign banks. Russian economy has several specific features that are not included in those works. This fact makes these models inapplicable for Russian banks or at least significantly lowers their power. Moreover, being very volatile the economy needs to adjust models constantly, so that particular characteristics that appear within some period of time are included and the influence of other characteristics is adjusted. This work is aimed to determine main factors that influence probability of bank default in current economic and geopolitical situation and to include factors that are specific to Russian economy today. The research will determine what indicators should be used while analysing the stability of Russian bank and an attempt to look at whether the introduction of anti - Russian sanctions influenced banking system. In addition, a