COVID‐19, corporate non-performing loans, and corporate lending dynamics: Evidence from Russian regions

The article defines the nature of the loan portfolio, as well as the problems in the assessment and analysis of the commercial bank loan portfolio. In order to improve the existing credit portfolio of the bank, the dynamics, categories of the borrower ratio and the quality of the loan portfolio are analyzed, based on the obtained data, significant factors influencing the formation and management of the analyzed bank's loan portfolio are determined. Generation of a loan portfolio is usually subject to issuance of loans with maximum yield on the same terms. The profitability of a loan transaction is determined by the amount of the interest rate on the specific loan, the duration of the loan and the accepted system of calculation of interest payments. Practice shows that the success of managing the efficiency of banking investments and the formation of an effective structure of the bank's credit portfolio depend to a large extent on the skills of managing the banking institutions that carry out optimal formation, management of the credit portfolio and good management to ensure the efficiency of activities with the least possible risk and maximize results. The quality of the loan portfolio is analyzed using the coefficient method based on the calculation and analysis of trends in the development of relevant quantitative indicators. In the economic literature, the indicators that we can use to assess the quality of a bank's loan portfolio are divided into two groups: the credit portfolio risk index and the profitability of the credit business. The results of the analysis allow us to draw conclusions about the level of risk and profitability of the bank's loan portfolio and to develop measures to improve the effectiveness of the bank's credit policy. Based on the analysis of the structure and quality of the loan portfolio, the Bank's management is given an opinion to consider in order to determine the priority instructions for the placement of credit resources, limit the concentration and diversification of the loan portfolio and set limits on the execution of individual loans. It is concluded that prudent credit policy with an increase in rates, constant monitoring of the components of the credit portfolio, urgent management measures of banking institutions in the field of risk management should lead to an increase in lending and improve the quality of the portfolio management system. It is noted that the implementation of mainly quality measures to improve the structure of the loan portfolio will inevitably affect the financial stability of the bank and business efficiency, as well as increase its competitiveness and operational security.

The article defines the quality of the loan portfolio as a favorable state of its structure, in which the banking institution will be able to ensure maximum profitability with a minimum level of credit risk and optimal liquidity of the bank's balance sheet. The dynamics of non-performing assets was studied and the banks with the largest share in the loan portfolio were identified. The necessity of more effective credit risk management and the expediency of assessing the quality of the bank's loan portfolio are substantiated. The concept of improving the assessment of the quality of the loan portfolio in the management of the bank's credit activities has been developed, the implementation of which will increase the efficiency of its activities and contribute to the development of the country's banking system.The article emphasizes that the concept of improving the quality of the loan portfolio in the management of credit activities of the bank - a holistic system of theoretical and methodological views on the nature, purpose, objectives and principles of assessing the quality of the loan portfolio in the management of credit activities, as well as organizational and practical approaches to the formation of the mechanism of its implementation in specific conditions. Factors that affect the level of quality of the loan portfolio are identified. Substantiation of the stages of formation of the bank's lending activity, which will allow the banking institution to implement the concept of improving the assessment of the quality of the loan portfolio in the management of the bank's lending activities in full.

Lending is one of the major banking institutions. But lending has some risks of varying degrees. The main purpose of banks is to repay loans and to maximize profits. To do this, banks need to implement an efficient, flexible and modern credit portfolio quality management system. An important element of this system is the analysis of the quality of the loan portfolio. That is why the consideration of the methods by which banks can carry out this analysis is a very actual topic. The purpose of this paper is to review methods of analyzing the quality of a bank's loan portfolio, as well as to outline the disadvantages and benefits of each method. The paper examines the most common and modern approaches to defining the concept of «bank loan portfolio». The types of loan portfolio are considered. The definition of the quality of the bank loan portfolio is given. The definition of bank credit portfolio management is given and the basic elements of credit portfolio management are given. The main methods to be used in assessing the quality of a bank's loan portfolio are identified. They are divided into three groups: methods of expert judgment, statistical and analytical methods. A more detailed description of the methods in the three groups listed above is given. The rating method, the «Decision Tree» method, coefficient analysis, Monte Carlo method, scoring, correlation-regression analysis, taxonomic analysis and stress testing are characterized. The advantages and disadvantages of each method are also given. Indicators to assess the quality of the bank's loan portfolio are considered: the credit portfolio risk indicators and the profitability of credit operations. After the study, it was concluded that the above methods of analysis of the quality of the loan portfolio should be applied comprehensively. It is determined that currently the banks of Ukraine do not use the whole analytical set of methods, but choose for themselves several and constantly use them in the analysis of the quality of the loan portfolio. In order to ensure effective management of the bank's credit portfolio, it is necessary to constantly monitor the quality of the bank's credit portfolio for early detection of credit risk and its prevention, as well as for detection of deterioration of profitability indicators.

Aim/purpose – This paper aims at examining the impact of revenue diversification on the quality of loan portfolio. The interest has been stimulated by the growing appetite for nontraditional activities among banks due to the declining interest income and rising nonperforming loans. Design/methodology/approach – The study considers a sample of 67 countries and quarterly banking sector financial reports over the period 2016Q1-2018Q4.The data are extracted from the International Monetary Fund Financial Soundness Indicators (FSI) database and are analysed through fixed effect regression as supported by the Hausman test.Findings – The study finds that revenue diversification impairs the quality of the loan portfolio. The findings are attributable to loss of focus, lack of expertise in managing non-lending activities, and possible agency problems. Moreover, the study controls for several banking sector-specific factors that affect the quality of loan portfolio. The re-sults show that credit growth and banking sector performance improve the quality of loan portfolio quality. However, the banking sector capitalisation and cost efficiency lower the loan portfolio rate, but the banking sector size has no significant effect.Research implications/limitations – Based on the findings, the study recommends that practitioners and regulators focus on innovative loans appraisal and monitoring practices instead of diversifying into non-interest generating activities.Originality/value/contribution – Unlike previous studies that focused on the relation-ship between income diversification and bank performance, this study contributes to the literature by examining the relationship between revenue diversification and quality of loan portfolio, thus bringing in a new insight into the bank revenue diversification debate.

Статья посвящена путям совершенствования качества кредитного портфеля. Качество кредитного портфеля рассмотрено на примере акционерного общества «Россельхозбанк», выявлены проблемные зоны в области формирования резервов на возможные потери по ссудам, ссудной и приравненной к ней задолженности. По результатам проведенного исследования предложено сформировать такой резерв с целью снижения рисков кредитования и улучшения качества кредитного портфеля банка. The article is devoted to ways to improve the quality of the loan portfolio. The quality of the loan portfolio is considered on the example of the joint-stock company "Rosselkhoznadzor", problem areas in the field of formation of reserves for possible losses on loans, loan and equivalent debt are identified. Based on the results of the study, it was proposed to form such a reserve in order to reduce the risks of lending and improve the quality of the bank's loan portfolio.

The last decade was characterized by the improvement of the financial systems’ monitoring mechanism at the national and international levels aimed at making effective decisions on financial stabilisation. The purpose of this study is to assess the sustainability of banking sectors of the leading economically developed and developing countries for the period 2009-2018, taking into account the processes occurring in the global economy and international financial markets.The research applied the International Monetary Fund methodology for assessing the stability of depository institutions and used the IMF database containing financial soundness indicators of the banking sectors in the studied countries. The economic and statistical analysis of financial soundness indicators of the banking sectors made it possible to explain the influence of economic conditions on the level and dynamics of the banks’ performance indicators as well as to identify the strengths and problems of the banking systems.The results of the study indicate an increase in the sustainability of the developed countries’ banking sectors, which is confirmed by the growing trends of capital adequacy and the quality of bank loan portfolios. The main problem of the developed countries is stably low profitability which, in the long term, could lead to a decrease in the banks’ capitalisation and their inability to maintain economic growth.A positive trend in the banking sectors of the developing countries is the recovery of capital adequacy, whereas the negative trend is a decrease in the quality of loan portfolios and profitability indicators. High credit risks and insufficient capitalisation represent the vulnerabilities of the developing countries’ banking sectors, while the increased volatility of financial soundness indicators, especially liquidity, is caused by the impact of the external trade and financial conditions.The results of this research could be used by analysts and regulators in macroeconomic calculations and when developing supervisory stress testing models, as well as by bank managers for performing internal stress tests and strategic business planning.

The credit risk is one of the main risks in commercial banks and the ability to manage it meaningly affect banks’ stability. This risk arises due to the particular reasons related with the possibility to lose loans if the debtors are not able to meet their financial obligations. When making the decisions of financing the loan applicants banks use the credit risk assessment models that allow to estimate the probability of the potential borrowers to default on their loan commitments. The main goal of managing the credit risk in banks is to compound the loan portfolio of the acceptable risk level. According to Derelioglu and Gurgen (2011) the credit risk analysis aims to decrease future losses by estimating the potential risk and eliminating the new credit proposal if the risk is higher than a defined tolerance value. In this respect, it is essential to identify the main factors causing this risk in order to manage it. When assessing the credit risk of every company banks usually analyze the financial data and some qualitative factors as the independent variables in the statistical credit risk assessment models. But changing the credit policy in banks and pricing the credits it is very important to predict the quality of loan portfolio in future. The problem can be summarized as finding the statistical methods that relates the proportion of doubtful and non-performing credits in the loan portfolio (dependent variable) with the set of explanatory variables (macroeconomic information of a country). The aim of this research is to find the macroeconomic determinants that significantly influence the changes of loan portfolio credit risk in banks and to develop the statistical model for prediction of the proportion of doubtful and non-performing loans. The scientific literature analysis results confirmed the influence of macroeconomic conditions on credit risk of debtors in banks and presented that the changes in quality of loan portfolio in banks depend on GDP, inflation, interest rates, money supply, industrial production index, current account balance and other. In empirical research 22 EU countries were grouped into 3 clusters according to their similarity in changes of the doubtful and non-performing loans percentage in banks. The set of 20 independent variables as factors determining the changes in amount of doubtful and non-performing loans was created. These variables were calculated from 9 macroeconomic indicators of 3 years. The model was developed to classify the countries into clusters applying the logistic regression, factor analysis and probit methods. The classification accuracy is 100%. The predictions of doubtful and non-performing loans indexes are based on the analysis of the scores of extracted 5 factors as new independent variables. The multiple regression and polynomial regression methods were applied for the index predictions in clusters. The developed model in this research enables to predict the percentage of doubtful and non-performing loans in banks with the average 98,06% accuracy. The research has confirmed that the amount of doubtful and non-performing loans in banks highly depends on macroeconomic changes in a country. The model can warn the banks in advance if the significant increase in the loan portfolio credit risk after 2 years is highly possible.DOI: http://dx.doi.org/10.5755/j01.ee.23.5.1890

Introduction The development of Russia's banking sector has been very uneven in the recent 15 years. Major crises in the economy (for example, the crises of 1998 and 2008) led to the bankruptcy of some largest banks. The economic reform, which has been undertaken lately, opened a new stage and goals in the development of the banking system. The pre-crisis state of the economy stimulates an increase in the number of loans granted to individuals, i.e., consumer loans. Consumer loan is one of the most common types of banking activities in developed Western countries. It should be mentioned that the scope of application of consumer loans is significant, as they are used not only to buy durable goods, such as cars, appliances, etc. For example, buying property in installments is basically also one of the varieties of long-term consumer loans; current purchases made with credit cards are not inferior to the use of consumer loans, as far as large purchases are concerned. Consumer loans are very widespread in industrialized countries primarily because owing to the use of this technique to finance purchases market capacity on a range of consumer goods and real estate is greatly increasing. Without limiting the preceding, in ongoing conditions availability of credit resources of commercial banks is very appealing to individuals, as there is a tendency of decreasing the key interest rate of the Central Bank of the Russian Federation. It has been 10% since 19 September 2016. The results of the research can be used to smooth out the uneven availability of credit resources in different regions of Russia and, as a result, their unbalanced development, as well as for the balanced development of the Russian economy on the whole. Data and Methods Consumer credit market in Russia is going through lean times (Natocheeva and Rusanov, 2016; Molodyko, 2015; Gerzelieva, 2016; Rusanov et al., 2015; Sharma, 2014; Sibirskaya et al., 2016). This is evident from the data presented in Figure 1. According to the Bank of Russia, there was a significant reduction in the volume of loans in January 2015 compared to January 2016, and this figure fell by 6.4%. The largest volume of loans was provided in January 2015 (11,028,783 mln. roubles), and then gradually decreased until it reached the minimum of 10,318,928 mln. roubles in April 2016. According to Figure 1, we can also notice a slight increase in the cost of loans granted to individuals. Thus, in July 2016 individuals received loans for a total amount of 10,365,553 mln. roubles. As far as the volume of loans granted in foreign currency is concerned, a negative dynamics can be traced there as well (Figure 2). The drop in volume of loans is not as rapid as the one in the national currency. For example, in February 2015 the volume of loans increased by 19.9% and amounted to 360,690 mln roubles in comparison with January of the same year, which is the highest value in the period from January 2015 to July 2016. The lowest value was recorded in July 2016 and amounted to 207,365 mln roubles. The slowdown in growth of the loan market to individuals is to a greater extent due to the financial crisis in 2014, which resulted in a decrease in personal income, rising prices, weakening the rouble as well as an increase in interest rates. One reason for the decrease in the volume of loans to individuals is the loss of credibility to consumers (Sysoeva, 2015; Tursunov, Sergeyeva, 2016; Arslan-Ayaydin et al., 2014; Nechaev and Antipina, 2016), which is caused by an increase in the number of loans to cover arrears. Thus, according to Fig. 3, it can be inferred that the share of loans to cover arrears over 90 days, granted in roubles, increased by 7.9% in January 2015 and by 10.5% in January 2016. However, this indicator reached its maximum of 10.9% in March 2016 and dropped by 0.3% and amounted to 10.6% in August 2016. Consequently, the volume of outstanding loans to individuals formed a steady downward trend. …

This article uses 496 loans from ABC rural SACCOS located in the Northern zone of Tanzania to describe the effectiveness of loan’s portfolio management. The data analysis is done by using the multivariate regression, descriptive and qualitative methods. The data for this study was collected at the end of May 2013. The findings reveal that women constituted 52.6% of the loan portfolio. Also the doubtful and bad loans were 51 and 31 million TZS which was more than 10% of the loan portfolio. The findings show loans were aged into 4 classes and the loans aging was not very effective because loans of different ages were classified in a single class. The results from the regression analysis reveal that the quality of loan portfolio was positively influenced by the loan size while the influence of gender and location of the borrowers were not significant. Moreover, ABC rural SACCOS used portfolio diversification, collateral, guarantors, letter from the village/ward government offices and the affidavit from the lawyer as credits risk mitigation techniques. The findings also revealed that fluctuation of the price of agricultural produce threatened the quality of loan portfolio. This article recommends that ABC rural SACCOS should seek the effective insurance services, use the effective software for loan portfolio management, search the market for agriculture produce, write off non repaid loans, enhance the repayment of overdue loans and revise the loan classes and maturity in order to improve the quality of the loan portfolio in the SACCOS.

Subject. The article discusses the impact of the dollar exchange rate on the quality of loan portfolio. Objectives. The study aims to highlight the importance of the impact of fluctuations in the dollar exchange rate on the quality of loan portfolio and to develop an algorithm for issuing loans to reduce the dependence of portfolio components on these fluctuations. Methods. Based on analysis and synthesis, and the algorithm used, we proposed to create a new algorithm for building a loan portfolio to reduce risks and improve its quality. Results. The study revealed that currently, the issuance of loans is significantly influenced by the exchange rate of foreign currency. The offered new algorithm for issuing loans included in the loan portfolio will enable to effectively solve the problem of aggravating the quality of loans. Conclusions. To build a high-quality loan portfolio, it is necessary to improve the algorithm for issuing loans. Currency fluctuations have a very significant impact on the loan rate against the background of sanctions imposed on the country. Preferential lending programs are also being canceled. In this regard, the quality of loans is decreasing, which negatively affects the stability of banks in the Russian Federation. If used, the proposed algorithm may improve loan portfolio quality as the ratio between risk and profitability turns out to be optimal. Any bank in the country can apply this algorithm by using artificial intelligence at the stage of issuing a loan.

Subject. This article deals with the issues of optimal credit policy of commercial banks in light of the current situation in the Russian regions' financial market and the balance between it and the State monetary policy. Objectives. The article seeks to justify integrated approaches to the formation of banks' effective credit policy in the corporate segment of the regional financial market to supply the gaps in the scholarly literature. Methods. For the study, we used the methods of systems, business, and statistical analyses, classification, comparison, and the method of expert assessment. The Bank of Russia and Russian lead banks' annual reports and financial statements statistics are the information base of the study. Results. The article reveals the reasons for the lack of efficiency in lending to enterprises of the real sector of the economy by banks. It assesses the negative impact of external and internal factors on banks' credit policy. The article substantiates the application of integrated approaches when developing the credit policy of commercial banks and provides recommendations to solve the identified problems. Relevance. The conclusions of the article can be used by specialists of State and municipal governments when developing planned solutions in the area of cooperation between enterprises and commercial banks in order to improve lending to regional businesses.

The article examines the theoretical, normative, and methodical aspects of the formation of banks' strategies for reducing non-performing loans, systematizes, supplements, and details the system of factors that cause non-performing loans in domestic banks. The purpose of the study is to systematize and detail the list of possible factors for the emergence of problem loans and to develop an appropriate strategy for reducing nonperforming loans in domestic banks. The systematization of literary sources and approaches to solving this problem indicates the absence among scientists and experts in the banking sphere of a generally accepted system of factors for the emergence of non-performing loans in banks, which would take into account the different nature and subjects of their influence at the micro and macro levels. In addition, the study showed the need for the formation or revision of existing strategies for reducing non-performing loans, which will enable banks to be operationally ready for the settlement of particularly large volumes of non-performing loans in current realities. The urgency of solving this scientific problem lies in the fact that in the current conditions of a significant increase in the volume of non-performing loans, improving the quality of bank loan portfolios and ensuring the financial stability of the banking system as a whole is impossible without the development of a comprehensive strategy for reducing nonperforming loans. The study of the problem covered in the article is carried out in the following logical sequence: identification of the factors of the occurrence of non-performing loans in banks at the micro- and macro-levels, their systematization, addition and detailing by the nature and participants of credit relations that caused their occurrence; development of the bank's strategy for reducing non-performing loans, which includes the main stages of a comprehensive action plan and appropriate measures for the settlement of problem credit debt at each of these stages. The methodological toolkit of the research was a complex of complementary methods: analysis and synthesis, cause and effect analysis - for systematization, detailing and addition to the list of internal and external factors of the occurrence of non-performing loans in banks, system-analytical, logical generalization - for the development of a strategy for reducing non-performing loans in domestic banks, etc. The object of the research is portfolios of non-performing loans of domestic banks, as well as a set of factors of their occurrence and measures to reduce them. The article presents the results of a cause-and-effect analysis, which made it possible to systematize, detail, and supplement the list of internal and external factors of the occurrence of non-performing loans in banks. The results of the system analysis and logical generalization are presented, which serve as the basis for the formation of a strategy for reducing non-performing loans in banks. The results of the research can be useful for Ukrainian banks, allowing them to minimize credit risks in the future.

As non-performing loans (NPLs) can cause monetary crises that may turn into financial crises affecting an entire economy, monitoring them is very important. If NPLs are not identified and recognized efficiently, both in terms of speed and scope, NPL resolution effectiveness is undermined, which in turn will have negative effects on the banking sector and ultimately on GDP growth.The main aim of this article is to identify changes in the quality of bank loan portfolios in European Union (EU) countries in 2009–2021, using an example of the Visegrad Group (Czech Republic, Poland, Slovakia, Hungary) as well as France and Germany. Keeping in mind the fact that the share of loans to households in EU portfolios is approximately 60%, it has a significant impact on the share of non-performing loans (NPL) in a bank’s entire portfolio. Therefore, it is important to identify macroeconomic determinants influencing the creditworthiness of households and their loan servicing capacity.The specific aims are, first, to present the differences in NPLs, debt servicing costs, and the structure of loan portfolios in the selected EU countries. Second, to identify countries with high-quality portfolios and those undertaking restructuring. Thirdly, to examine the determinants of NPL for household loans based on the example of Poland, i.e., a country considered representative in terms of the average level of NPL and the portfolio structure in the group of countries studied.This chapter presents the changes of NPLs, debt service ratio, and household loans in selected EU countries in 2009–2021. Moreover, an NPLs econometric model for Poland is constructed, which considers the main factors determining the creditworthiness of households, i.e., macroeconomic factors, financial standing, and debt servicing costs. Tools such as the VECM model, the variance decomposition and the impulse response functions are used. The results for Poland confirm that the NPLs ratio for households was the strongest explanation of previous changes in own NPL, consumption and real wages in the household sector in 2009–2021.

Nowadays the financial stability of the banking sector is a very controversial topic especially the assessment of the right quantity of capital that banks must set aside to be protect against various types of risks with which has to do the banking sector, it presents a big challenge. One of techniques that help to bring answer on the question whether a special bank or banking sector has a sufficient capital in case of crisis is a stress testing. So the stress testing analysis represents an important tool of sustainable assessment of the banking sector towards possible shocks on credit portfolio and on liquidity position, which can resulting from unfavorable economic development and changes on market conditions. Stress testings of the sensitivity of financial institutions towards macroeconomic shocks are a valuable assistance in the assessment of the economic stability. They allow an predictive analysis and an uniform approach for the identification of potential risks of the banking system in general. The results of the analysis for stress testing that are made for the banking sector in Kosovo suggest satisfied abilities of this sector to meet unexpected situations of exposure toward possible risks. Although banks are facing with many risks, the credit risk which will be treated in this study aloud a great weigh. This study has an intent to determine macroeconomic factors that have impact in quality of loan portfolios. Through the study we would present an analysis of financial situation in connection with the impending level of nonperforming loans, proceedings that are taken to reduce or to keep at sustainable level, also will be evaluated.The vulnerability of the banking sector toward sector risk as much as we have information on the macroeconomic level and to determine the indicators that warning the early worsening in the quality of loan portfolio. Also through stress scenarios we could understand what will happen in different situations with non performing loans.

The purpose of the study is to develop effective ways to solve the problems of managing the quality of the loan portfolio of the Ukrainian banking sector in the context of the financial crisis caused by the russian-Ukrainian war. In the course of the study, such scientific methods as fundamental provisions of the credit portfolio theory, multifactor regression analysis, extrapolation, trend analysis, mathematical programming, etc. have been used. A methodical approach to the study of contemporary problems and prospects of loan portfolio quality management under martial law, consisting in modelling the profitability of the Ukrainian banking sector, taking into account the quality of the loan portfolio, has been proposed. This approach is implemented by constructing a two-factor power regression equation; forecasting with the establishment of confidence intervals and the development of 3 forecast scenarios (realistic, pessimistic and optimistic); solving the target function to maximize the profit of the banking sector, taking into account the restrictions formed on the basis of forecasting results. A power model of dependence of Ukrainian banking sector profitability on the volume of loan portfolio and non-performing loans has been built and its statistical significance has been established on the basis of official statistics for 2012–2022. It has been determined that an increase in the volume of the bank loan portfolio by 1% leads to an increase in bank income by 3.1%, while an increase in the volume of non-performing loans by 1% leads to a 0.28% reduction in revenues of the banking sector of Ukraine. The loan portfolio and NPL series have been extrapolated to 2023–2025, which is consistent with the medium-term, as long-term projections would be unreliable under martial law and deep recession. According to the results of medium-term forecasting and optimization, it has been proved that the maximum growth of bank revenues by 60.4%, compared to 2022, is possible with an increase in the loan portfolio by 18.9%, a reduction of non-performing loans by 26% and a reduction of their share in the loan portfolio by 13.9%. It has been justified that the key condition for maximising bank revenues is the soonest termination of the russian-Ukrainian war and further expansion of effective government concessional lending programs. In particular, the effectiveness of the state program “Affordable Loans 5–7–9%”, which provided 19% of the bank loan portfolio in Ukraine and became a key mechanism of anti-crisis business support both during the COVID-19 pandemic and during the large-scale invasion from 2022 during the russian-Ukrainian war, has been substantiated.