Competition in Russia’s Banking Sector Prior to and After Supervision Policy Enhancement: Conclusions Based on Interest Rate Dispersion and Spread

Abstract

Enhancement of the Bank of Russia's supervision policy in 2013 has heightened the relevance of evaluating banking competition as a tool to study the effects of banking sector recovery. We propose simple-to-calculate competition measures based on the dispersion and spread of loan and deposit rates across banks adjusted for the estimated risk of banks'lending policy. Estimation was performed for the period of 2010-2017. We have found no weakening in competition as measured by these indicators. This result has been corroborated by estimating an alternative but more elaborately calculated competition measure - the Boone indicator. We have also found that the period following this policy launch saw a drop in the volatility of corporate and retail lending in both the cluster of banks showing a relatively low level of nonperforming loans and amomg banks with a relatively high NPL level. This is accomponied by relatively low values of the systemic risk indicator SRISK and gradual recovery of the Z-index, which agrees with banking sector stability improvement.