Journal of Applied Economic Research
ISSN 2712-7435
Russian Banks Financial Stability Loss Diagnostic: Multidimensional Logit-Model Approach
Elena G. Shershneva 1, Min Zhou Hao 2
1 Ural Federal University named after the First President of Russia B.N. Yeltsin, Yekaterinburg, Russia
2 Qingdao University, Qingdao, China
Abstract
The financial stability of the banking sector characterizes the "economic health" at the national and global levels and its deterioration is a cause of financial crises. Improving the toolkit for early diagnosis of financial problems is a key element of monitoring and forecasting banking risks. The purpose of the study is to examine the specific features of intrabank factors influencing the risk of financial stability loss in Russian banks. The research hypotheses are as follows: 1) the highly significant predictors of bank's financial instability risk are return on assets and overdue loans; 2) the impact degree of financial stability factors differs for medium- and long-term horizons of risk forecasting. The authors present multidimensional logit models for estimating the probability of the loss of financial stability by banks for 6 and 12 months based on four variables: capital adequacy ratio, overdue loans fraction over 90 days, return on assets, current liquidity ratio. It was revealed that a growth of return on assets has a positive significant effect on financial stability, and an increase in overdue loans has a negative significant effect on a bank's "financial immunity". It is shown the impact degree of financial stability factors is varied for different forecast horizons: the return on assets is a more relevant factor for 6 months, and the overdue loans fraction is more important for a 12 month period. The theoretical significance consists in better scientific understanding of factors impacting on a bank's financial stability. The practical significance lies in the possibility for commercial banks to use econometric models and conclusions in analytical and risk-predictive algorithms.
Keywords
commercial bank; financial stability; financial stability factors; logistic regression; probability of financial stability loss.
JEL classification
G21, C53References
1. Khalatur, S., Velychko, L., Pavlenko, O., Karamushka, O., Huba, M. (2021). A Model for Analyzing the Financial Stability of Banks in the VUCA-world Conditions. Banks and Bank Systems, Vol. 16, Issue 1, 182–194. https://doi.org/10.21511/bbs.16(1).2021.16
2. Ozili, P.K., Iorember, P.T. (2023). Financial Stability and Sustainable Development. International Journal of Finance & Economics. https://doi.org/10.1002/ijfe.2803
3. Chen, Y. (2022). Bank Interconnectedness and Financial Stability: The Role of Bank Capital. Journal of Financial Stability, Vol. 61, 101019. https://doi.org/10.1016/j.jfs.2022.101019
4. Vostrikova, L.A., Panina, I.V. (2020). Analysis of the bank’s financial condition based on open data. Proceedings of Voronezh State University. Series: Economics and Management, No. 2, 13–26. (In Russ.). https://doi.org/10.17308/econ.2020.2/2898
5. Papanikolaou, N.I. (2018). A Dual Early Warning Model of Bank Distress. Economics Letters, Vol. 162, 127–130. doi.org/10.1016/j.econlet.2017.10.028
6. Rahman, S.M.K., Chowdhury, M.A.F., Tania, T.C. (2021). Nexus Among Bank Competition, Efficiency and Financial Stability: A Comprehensive Study in Bangladesh. The Journal of Asian Finance, Economics and Business, Vol. 8, Issue 2, 317–328. https://doi.org/10.13106/jafeb.2021.vol8.no2.0317
7. Miah, M.D., Uddin, H. (2017). Efficiency and Stability: A Comparative Study between Islamic and Conventional Banks in GCC Countries. Future Business Journal, Vol. 3, Issue 2, 172–185. https://doi.org/10.1016/j.fbj.2017.11.001
8. Asghar, M., Rashid, A., Abbas, Z. (2022). Basel III Effects on Bank Stability: Empirical Evidence from Emerging Countries. The Journal of Asian Finance, Economics and Business, Vol. 9, Issue 3, 347–354. https://doi.org/10.13106/jafeb.2022.vol9.no3.0347
9. Barra, C., Zotti, R. (2022). Financial Stability and Local Economic Development: The Experience of Italian Labor Market Areas. Empirical Economics, Vol. 62, 1951–1979. https://doi.org/10.1007/s00181-021-02071-x
10. Halaj, G., Martinez-Jaramillo, S., Battiston, S. (2024). Financial Stability through the Lens of Complex Systems. Journal of Financial Stability, Vol. 71, 101228. https://doi.org/10.1016/j.jfs.2024.101228
11. Adusei, M. (2015). The Impact of Bank Size and Funding Risk on Bank Stability. Cogent Economics & Finance, Vol. 3, 1111489. https://doi.org/10.1080/23322039.2015.1111489
12. Ali, M., Puah, K.H. (2018). Does Bank Size and Funding Risk Effect Bank’s Stability? A Lesson from Pakistan. Global Business Review, Vol. 19, Issue 5, 1166–1186. https://doi.org/10.1177/0972150918788745
13. Audi, M., Kassem, M., Roussel, J. (2021). Determinants of Banks Fragility in the MENA Region Using a Dynamic Model. The Journal of Developing Areas, Vol. 55, No. 1. https://doi.org/10.1353/jda.2021.0007
14. Lepetit, L., Nys, E., Rous, P., Tarazi, A. (2008). Bank Income Structure and Risk: An Empirical Analysis of European Banks. Journal of Banking & Finance, Vol. 32, Issue 8, 1452–1467. https://doi.org/10.1016/j.jbankfin.2007.12.002
15. Ozili, P.K., Outa, E. (2017). Bank Loan Loss Provisions Research: A Review. Borsa Istanbul Review, Vol. 17, Issue 3, 144–163. https://doi.org/10.1016/j.bir.2017.05.001
16. Mkadmi, J.E., Baccari, N., Ncib, A. (2021). The Determinants of Banking Stability: The Example of Tunisia. International Academic Journal of Accounting and Financial Management, Vol. 8, No. 1. https://doi.org/10.9756/IAJAFM/V8I1/IAJAFM0801
17. Siddika, A., Haron, R. (2019). Capital Regulation and Ownership Structure on Bank Risk. Journal of Financial Regulation and Compliance, Vol. 28, No. 1, 39–56. https://doi.org/10.1108/JFRC-02-2019-0015
18. Rupeika-Apoga, R., Zaidi, S.H., Thalassinos, Y.E., Thalassinos, E.I. (2018). Bank Stability: The Case of Nordic and Non-Nordic Banks in Latvia. International Journal of Economics and Business Administration, Vol. VI, Issue 2, 39–55. https://doi.org/10.35808/ijeba/156
19. Shershneva, E.G., Bakr Hasan, H.B., Al Hadabi, J. (2020). Econometric Modeling of the Bank’s Short-Term Liquidity Dynamics Based on Multi-Factor Regression. Journal of Applied Economic Research, Vol. 19, No. 1, 79–96. https://doi.org/10.15826/vestnik.2020.19.1.005
20. Wagner, W. (2007). The Liquidity of Bank Assets and Banking Stability. Journal of Banking & Finance, Vol. 31, Issue 1, 121–139. https://doi.org/10.1016/j.jbankfin.2005.07.019
21. Bouheni, F.B., Hasnaoui, A. (2017). Cyclical Behavior of the Financial Stability of Eurozone Commercial Banks. Economic Modelling, Vol. 67, 392–408. https://doi.org/10. 1016/j.econmod.2017.02.018
22. Shahriar, A., Mehzabin, S., Ahmed, Z., Dongul, E.S., Azad, A.K. (2023). Bank Stability, Performance and Efficiency: An Experience from West Asian Countries. IIM Ranchi Journal of Management Studies, Vol. 2, Issue 1, 31–47. https://doi.org/10.1108/IRJMS-02-2022-0017
23. Kasri, R.A., Azzahra, C. (2020). Determinants of Bank Stability in Indonesia. Signifikan: Jurnal Ilmu Ekonomi, Vol. 9, No. 2, 153–166. https://doi.org/10.15408/sjie.v9i2.15598
24. Yin, H. (2019). Bank Globalization and Financial Stability: International Evidence. Research in International Business and Finance, Vol. 49, 207–224. https://doi.org/10.1016/j.ribaf.2019.03.009
25. Uhde, A., Heimeshoff, U. (2009). Consolidation in Banking and Financial Stability in Europe: Empirical Evidence. Journal of Banking & Finance, Vol. 33, Issue 7, 1299–1311. https://doi.org/10.1016/j.jbankfin.2009.01.006
26. Kasman, A., Carvallo, O. (2014). Financial Stability, Competition and Efficiency in Latin American and Caribbean Banking. Journal of Applied Economics, Vol. 17, Issue 2, 301–324. https://doi.org/10.1016/S1514-0326(14)60014-3
27. Yuan, T.-T., Gu, X.-A., Yuan, Y.-M., Lu, J.-J., Ni, B.-P. (2022). Research on the Impact of Bank Competition on Stability – Empirical Evidence from 4631 Banks in US. Heliyon, Vol. 8, Issue 4, e09273. https://doi.org/10.1016/j.heliyon.2022.e09273
28. Čihák, M., Hesse, H. (2010). Islamic Banks and Financial Stability: An Empirical Analysis. Journal of Financial Services Research, Vol. 38, 95–113. https://doi.org/10.1007/s10693-010-0089-0
29. Nosheen, Rashid, A. (2019). Business Orientation, Efficiency and Credit Quality Across Business Cycle: Islamic versus Conventional Banking. Are There Any Lessons for Europe and Baltic States? Baltic Journal of Economics, Vol. 19, Issue 1, 105–135. https://doi.org/10.1080/1406099X.2018.1560947
30. Daoud, Y., Kammoun, A. (2020). Financial Stability and Bank Capital: The Case of Islamic Banks. International Journal of Economics and Financial Issues, Vol. 10, No. 5, 361–369. https://doi.org/10.32479/ijefi.10147
31. Joudar, F., Msatfa, Z., Metwalli, O., Mouabid, M., Dinar, B. (2023). Islamic Financial Stability Factors: An Econometric Evidence. Economies, Vol. 11, Issue 3, 79. https://doi.org/10.3390/economies11030079
32. Beaver, W.H. (1966). Financial Ratios as Predictors of Failure. Journal of Accounting Research, Vol. 4, 71–111. https://doi.org/10.2307/2490171
33. Altman, E.I. (1968). Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy. Journal of Finance, Vol. 23, Issue 4, 589–609. https://doi.org/10.1111/j.1540-6261.1968.tb00843.x
34. Meyer, P.A., Pifer, H.W. (1970). Prediction of Bank Failures. Journal of Finance, Vol. 25, Issue 4, 853–868. https://doi.org/10.1111/j.1540-6261.1970.tb00558.x
35. Sinkey, J.F. (1975). A Multivariate Statistical Analysis of The Characteristic of Problem Banks. Journal of Finance, Vol. 30, Issue 1, 21–36. https://doi.org/10.1111/j.1540-6261.1975.tb03158.x
36. Ohlson, J.A. (1980). Financial Ratios and the Probabilistic Prediction of Bankruptcy. Journal of Accounting Research, Vol. 18, No. 1, 109–131. https://doi.org/10.2307/2490395
37. Scott, J. (1981). The Probability of Bankruptcy: A Comparison of Empirical Predictions and Theoretical Models. Journal of Banking and Finance, Vol. 5, Issue 3, 317–344. https://doi.org/10.1016/0378-4266(81)90029-7
38. Hardy, D.C., Pazarbasioglu, C. (1999). Determinants and Leading Indicators of Banking Crises: Further Evidence. IMF Staff Papers, Vol. 46, 247–258. https://doi.org/10.2307/3867642
39. Shar, A.H., Shah, M.A., Jamali, H. (2010). Performance Evaluation of Banking Sector in Pakistan: An Application of Bankometer. International Journal of Business and Management, Vol. 5, No. 8, 113–118. https://doi.org/10.5539/ijbm.v5n8p113
40. Chiaramonte, L., Casu, B. (2017). Capital and Liquidity Ratios and Financial Distress. Evidence from the European Banking Industry. The British Accounting Review, Vol. 49, Issue 2, 138–161. https://doi.org/10.1016/j.bar.2016.04.001
41. Alaminos, D., del Castillo, A., Fernandez, M.A. (2018). A Global Model for Bankruptcy Prediction. PLoS ONE, Vol. 13, Issue 11, 0208476. https://doi.org/10.1371/journal.pone.0208476
42. Sanchez Gonzalez, J., Restrepo-Tobon, D., Ramirez Hassan, A. (2021). Inefficiency and Bank Failure: A Joint Bayesian Estimation Method of Stochastic Frontier and Hazards Models. Economic Modelling, Vol. 8, 344–360. https://doi.org/10.1016/j.econmod.2020.03.002
43. Tam, K.Y. (1991). Neural Network Models and the Prediction of Bank Bankruptcy. Omega-International Journal of Management Science, Vol. 19, Issue 5, 429–445. https://doi.org/10.1016/0305-0483(91)90060-7
44. Barr, R.S., Seiford, L.M., Siems, T.F. (1993). An Envelopment-Analysis Approach to Measuring the Managerial Efficiency of Banks. Annals of Operations Research, Vol. 45, 1–19. https://doi.org/10.1007/BF02282039
45. Li, Z., Feng, C., Tang, Y. (2022). Bank Efficiency and Failure Prediction: a Nonparametric and Dynamic Model Based on Data Envelopment Analysis. Annals of Operations Research, Vol. 315, 279–315. https://doi.org/10.1007/s10479-022-04597-4
46. Torky, M., Gad, I., Hassanien, A.E. (2023) Explainable AI Model for Recognizing Financial Crisis Roots Based on Pigeon Optimization and Gradient Boosting Model. International Journal of Computational Intelligence Systems, Vol. 16, 50. https://doi.org/10.1007/s44196-023-00222-9
47. Min, J.H, Lee, Y-C. (2005). Bankruptcy Prediction Using Support Vector Machine with Optimal Choice of Kernel Function Parameters. Expert Systems and Applications, Vol. 28, Issue 4, 603–614. https://doi.org/10.1016/j.eswa.2004.12.008
48. Erdogan, B.E. (2013). Prediction of Bankruptcy Using Support Vector Machines: An Application to Bank Bankruptcy. Journal of Statistical Computation and Simulation, Vol. 83, Issue 8, 1543–1555. https://doi.org/10.1080/00949655.2012.666550
49. Citterio, A. (2024). Bank Failure Prediction Models: Review and Outlook. Socio-Economic Planning Sciences, Vol. 92, 101818. https://doi.org/10.1016/j.seps.2024.101818
50. Gwachha, K.P. (2023). An Analysis of the Determinants of Bank Stability in the Banking Industry of Nepal. Khwopa Journal, Vol. 5, No. 2, 196–210. https://doi.org/10.3126/kjour.v5i2.60463
About Authors
Elena Gennadyevna Shershneva
Candidate of Economic Sciences, Associate Professor, Department of Banking and Investment Management, Ural Federal University named after the first President of Russia B.N. Yeltsin, Yekaterinburg, Russia (620002, Yekaterinburg, Mira street, 19); ORCID https://orcid.org/0000-0002-6739-8960 e-mail: e.g.shershneva@urfu.ru
Min Zhou Hao
Graduate Master of Economics, Business Consultant, Qingdao University, Qingdao, China (308 Ningxia Road, Qingdao, Shandong); ORCID https://orcid.org/0009-0002-9084-5084 e-mail: minzhou84@yahoo.com
For citation
Shershneva, E.G., Hao, M.Z. (2024). Russian Banks Financial Stability Loss Diagnostic: Multidimensional Logit-Model Approach. Journal of Applied Economic Research, Vol. 23, No. 2, 476-498. https://doi.org/10.15826/vestnik.2024.23.2.019
Article info
Received February 28, 2024; Revised March 31, 2024; Accepted April 15, 2024.
DOI: https://doi.org/10.15826/vestnik.2024.23.2.019
Download full text article:
~618 KB, *.pdf
(Uploaded
29.06.2024)
Created / Updated: 2 September 2015 / 20 September 2021
© Federal State Autonomous Educational Institution of Higher Education «Ural Federal University named after the first President of Russia B.N.Yeltsin»
Remarks?
select the text and press:
Ctrl + Enter
Portal design: Artsofte
Contact us
Rector's Office
Rector, Dr. Victor Koksharov
Tel. +7 (343) 375-45-03, e-mail: rector@urfu.ru
Vice-Rector for International Relations, Dr. Maxim Khomyakov
Tel. +7 (343) 375-46-27, e-mail: Maksim.Khomyakov@urfu.ru