Providing Banking Branches in Russian Regions: Assessment of the Role of Distance and Other Factors

Abstract

Over the past two decades, there has been a decrease in the number of banks in Russia, both as a result of concentration and consolidation processes in the global banking industry and of the banking sector rehabilitation policy pursued by the Central Bank of the Russian Federation. As a result, banking activities in the country are now carried out mainly by banks with headquarters in the capital. The article discusses the consequences of such geographic centralization of the Russian banking sector in terms of providing regions with a sufficient number of bank branches. The aim of the study is to assess the impact of distance on banks’ ability to maintain their presence in regions, as well as to identify differences in this regard between different categories of banks, including the composition of owners, location of the head office, and size of the bank. The impact of distances on the number of bank offices in regions at the end of 2018, according to the Central Bank of the Russian Federation, is assessed using the Poisson regression method for interregional trade gravity models. The results showed that the largest banks in their office location strategy are guided by the characteristics of locales, regardless of distance from the bank’s head office. At the same time, the composition of a bank’s owners has little effect, although in fact, financial accessibility and inclusion in the country are to a large extent provided by the largest state-owned banks. The office location strategy is also linked to the location of the bank’s head office in the capital. The remaining regional banks are more likely to operate locally; for them the distance factor in the formation of a branch network is important. Despite banking licensing reform in 2018, the number of banks continues to decline and the level of competition and diversity in this sphere in Russian regions is still debatable.