Abstract
Various aspects of credit risk have been studied by many researchers. Scientists and practitioners consider different credit risk assessment methods depending on its application, e.g. to determine capital adequacy, to make loss loan provisions, or to estimate its influence on the interest rate. At the same time, there are almost no studies that consider the relationship between loan loss provisioning framework and loan decisions. The study seeks to 1) understand how the practices and procedures of loan loss provisioning impact total gross loans of Russian banks, and 2) identify constraints for insufficient levels of lending and factors that can foster lending.With the use of an econometric model we estimate a quantitative effect of credit portfolio on the growth of loan loss provisions. We base our model on data derived from financial statements of 400 Russian credit institutions between 2014 and 2019. In addition to our empirical model, we analyze statistical data on the development of the Russian banking system and compare the loan loss provisions in Russian and foreign financial organizations. The estimates are based on Russian official statistics and financial statements of banks within and outside Russia. The study reveals that the existing credit risk assessment method that rests on the regulations provided by the Bank of Russia is responsible for excessive loan loss provisions accumulated by Russian banks. This, in turn, affects the volumes of bank loans.In our research we have arrived at the conclusion that the existing loan loss provisioning is excessive. Current loan loss provisions do not correspond to real lending losses. They negatively affect the financial results of credit institutions, resulting in ungrounded refusals to lend, which in turn limits economic growth. These results support the rationale for reinventing the existing framework of loan loss provisioning.
Highlights
In seeking ways to expand their activities, many businesses face the problem of resource scarcity
The study reveals that the existing credit risk assessment method that rests on the regulations provided by the Bank of Russia is responsible for excessive loan loss provisions accumulated by Russian banks
In the course of this study, we compared annual gross domestic product (GDP) values and total gross loans with maturity dates at the beginning of the coming year provided to non-financial organisations, and to non-financial organisations and individual customers, and compared their growth rates
Summary
In seeking ways to expand their activities, many businesses face the problem of resource scarcity. For most enterprises in different industries, bank loans represent the primary way to address their financial shortfalls. The breakdown of the liabilities of Russian business organizations (except small enterprises) shows that the total amount of bank loans is 1.2 times greater than the amounts payable to vendors and customers A distinct feature of the Russian banking sector is its excess liquidity. As of the beginning of the year 2018, structural liquidity surplus has never fallen below 2 trillion rubles (Figure 2) [3]. Considering the scale of this situation, one might ask- why should these tremendous financial resources not be channeled into real economy?
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Journal of Corporate Finance Research / Корпоративные Финансы | ISSN: 2073-0438
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
