Journal of Applied Economic Research
ISSN 2712-7435
Diversification Effects of the Corporate Loan Portfolios of Russian Banks in the Context of Risk-Management Paradoxes
Domnikov A.Yu., Kondyukova E.S., Shershneva E.G., Beltyukova M.A.
Abstract
Abstract. The article examines the contradictory aspects of the application of industrial diversification of the corporate loan as one of the most commonly used instruments of credit risk reduction in banking. By implementing industrial diversification of the credit policy, commercial banks aim to create a structure of credit investments that would achieve the desired risk and return parameters. The effects of industrial diversification of loans show in different ratios of risk and return that are the most important indicators of the quality of the bank's corporate loan portfolio. The purpose of this article is to identify contradictory (paradoxical) consequences of the application of industrial diversification of credit investments in the context of different approaches of risk management. The article presents the results of research into the relationship between the industrial structure of credit investments and the indicators of quality of corporate loan portfolios using the case of a group of Russian banks. The authors propose a methodical approach to diversification analysis, which allows for monitoring the industrial structure of loans in order to minimize portfolio risk. The analytical procedures are based on the Herfindahl-Hirschman index, clustering method, comparison method. The study was based on official financial statements of eight Russian banks with different scales of activity. As a result, the study identified features of the industry composition of credit portfolios of different banks in correlation with their risk appetite, which allowed the authors to reveal contradictory effects of the industrial diversification of corporate loans. The results can used when taking tactical and strategic management decisions by credit managers. In conclusion, the authors proved the importance of having a strategically elaborate policy of industrial diversification of the corporate loans portfolio in the common credit policy of the bank.
Keywords
Key words: banks; corporate sector; corporate loan portfolio; industrial diversification; industry concentration; factors of portfolio risk; credit risk; the dilemma of «risk-profitability»; paradoxes of risk-management; financial decision-making patterns
About Authors
DOI: http://dx.doi.org/10.15826/vestnik.2016.15.3.20
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