Bank profitability in the Eurasian Economic Union: Do funding liquidity and systemic importance matter?

Olga Pak

The North American Journal of Economics and Finance, 2020, vol. 54, issue C

Abstract: The post-crisis regulatory architecture targets greater banking stability by imposing additional capital and liquidity requirements. Profit persistence, however, remains an important factor for attaining this goal. Using annual data for 2008–2017, this study analyzes the relationship between funding stability, systemic importance, and the profitability of banks in the three founding states of the Eurasian Economic Union (EAEU): Russia, Kazakhstan, and Belarus. The results show a strong degree of stability in net interest margin (NIM) and a lack of persistence in return on assets (ROA). Compliance with the minimum level of the Net Stable Funding Ratio (NSFR) reduces both the funding liquidity risk and the NIM of EAEU banks. Moreover, systemically important banks in the region historically operate at a lower interest spread and less prudent NSFR, which implies a potentially greater adverse effect on their NIM. Bank-specific variables have various impacts depending on the measure of profitability. The results also highlight that greater market concentration protects the NIM and negatively impacts the ROA of EAEU banks. Finally, Western sanctions have a destabilizing effect on the NIM of EAEU banks, but not on systemically important banks.

Keywords: Funding liquidity; Profit persistence; NSFR; Systemic importance; Sanctions (search for similar items in EconPapers)
JEL-codes: G20 G21 G28 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301625

DOI: 10.1016/j.najef.2020.101265

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