Bad Management, Skimping, or both? The Relationship between Cost Efficiency and Loan Quality in Russ - XV April International Academic Conference on

Bad Management, Skimping, or both? The Relationship between Cost Efficiency and Loan Quality in Russ

This preview shows page 1 - 4 out of 21 pages.

XV April International Academic Conference on Economic and Social Development Moscow Economic and Social Development, Moscow Bad Management, Skimping, or both? The Relationship between Cost Efficiency and Loan Quality in Russian Banks Mikhail Mamonov, Center for Macroeconomic Analysis and Short Short-term Forecasting (CMASF), term Forecasting (CMASF), National Research University Higher School of Economics (NRU HSE) April 2, 2014
Image of page 1
Motivation & Contribution 1/4 Fundamental questions: 1. Does higher cost efficiency always imply lower credit risk exposure of banks (the first case)? Or whether higher cost efficiency could mean insufficient spending on borrowers screening and lead thus to higher bank credit risks (the second case)? 2. Does one case necessarily exclude the other? Or could they coexist at different b l ( ) f b k ? subsamples (groups) of banks? 3. How can we distinguish between the two cases? What are possible motivations of banks’ managers that could explain the relationships in both cases? Why it is important: 1. While the first case can be treated as normal, the second one seems to be counterintuitive and, if it is relevant indeed, casts doubt on higher cost efficiency being the reflection of best managerial practices. 2. The second case could be a consequence of financial accounts falsifications undertaken by banks to satisfy official requirements. 3. If the both cases do coexist a proper kind of differential prudential regulation should be implemented by monetary authorities. 2 4. These issues are closely related to maintaining financial stability, which is essential for policymakers especially after the global economic crisis. Center for Macroeconomic Analysis and Short-term Forecasting
Image of page 2