Are Financial Risks Rewarded with Appropriate Returns in Russian Banks?

Abstract

The purpose of this study is to evaluate the risk efficiency of 85 Russian commercial banks During the period “2008 - 2017”. This study uses the Data Envelopment Analysis (DEA) with financial ratios to evaluate the risk efficiency of Russian banks. The inputs of model DEA are represented by financial risk and leverage, while the outputs are represented by profitability. The study found the impact of credit risk, operational risk, and liquidity risk on performance indicators in Russian banks was positive and important, but the impact of leverage and interest rate risk on performance indicators in Russian banks was limited and negative. The study also found that the medium Russian banks were the most effective in risk efficiency, while small banks were more efficient than large banks. The study also concluded that the leverage recommended by Basel 3 is insufficient to provide stability in banks. The study suggested a model for monitoring Russian banks on the basis of the concept of risk efficiency to improve banking regulation and increase risk efficiency.