How Do Macroeconomic Indicators Influence Banking Profitability in Russia

This paper finds out the macroeconomic indicators which have an impact on the profitability of Russian banks based on the data from 1Q 2008 to 3Q 2014. This analysis is relevant, in particular, due to sanctions and restrictions against Russia which have significantly altered the current macroeconomic conditions. Similarly to European empirical papers, we use three groups of the macroeconomic factors which describe economic conditions, industry structure and accessibility to banking services, respectively. The translog profit function is specified. As a result, we reveal degree and direction, in which the macroeconomic variables influence banking profitability and check robustness of our results. To check robustness of our results, we choose different time sub-periods, account for banking income and cost structure and heterogeneity of the sample, and include such variable, as population density multiplied by a cyclical parameter. The Russian banks may require these results to develop medium and long run business strategies, and the regulator can bear our findings in mind to develop stress- testing methodology for determining the weights of macroeconomic indicators.