Abstract
This article analyzes the relationship between ownership structure and risk profile based on the data from the emerging banking market. Using Kohonen self-organizing maps, we divide banks into clusters according to the type of risk profile. This mapping technique is based on panel data dimensionality reduction, as risk profile is changeable over time. We adopted the Basel Committee on Banking Supervision recommendations regarding the types of concentration of funding serving also as a basis for determining the risk exposure of banks and used them as an input for Kohonen maps. We conclude that business models and, consequently, risk exposures of banks significantly depend on sources of capital (domestic private, foreign, state). Our empirical results show that ownership type is a major, but not the only factor influencing bank risk profiles. These findings call for a change of the regulatory paradigm in emerging (banking) markets.
Highlights
In many developed economies, banks play a crucial role: while they transform volumes, values, terms, and risk in ways that allow handling the problems of transaction cost and information asymmetry efficiently
We adopted the Basel Committee on Banking Supervision recommendations regarding the types of concentration of funding serving as a basis for determining the risk exposure of banks and used them as an input for Kohonen maps
One of the features of our approach is the inclusion of input for all periods of the study, so the results allow tracking the intensity of changes in the business models of banks based on the risk profile monitoring
Summary
Banks play a crucial role: while they transform volumes, values, terms, and risk in ways that allow handling the problems of transaction cost and information asymmetry efficiently (originally, Benston and Smith 1976; Leland and Pyle 1977; as an overview, Greenbaum, Thakor, and Boot 2015). The Ukrainian financial industry experienced the same trends of capital inflows (and subsequent outflows) from Western Europe as banks operating in CIS markets To our knowledge, this is the first study that analyses the relationship between bank risk profile and ownership structure of the banks in Ukraine in terms of several ownership groups including domestic state/private owned, and foreign banks.
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