The quality of bank risk management: Triggers of financial problems

Abstract

The significant decrease in the number of banks in the Russian Federation observed recently and arising high social costs of liquidation and sanitation procedures underpin the need for continuous improvement of early-warning systems of bankruptcy. The aim of the article is to identify the key leading indicators of financial insolvency of banks. The study was conducted on a sample of 49 banks from the cluster of medium and small banks in the Moscow region with a license revoked for economic reasons in the period from 2015 to the first half of 2016. The results were tested on a sample of 32 banks, both active and with withdrawn license. We identified the dependence of chosen leading indicators from a number of financial indicators displaying the quality of capital, assets, yield, profitability and liquidity. The results could shed additional light at the causes of financial problems of banks and improve the quality of risk management.