An empirical analysis of growth and consolidation in banking: a Markovian approach for the case of Russia

This paper represents an empirical research of the growth process in the Russian banking sector during 2004-2010 years. The growth process is modelled by Markov chains. Nine states were used to describe the growth process. Markov chain stationarity check revealed three homogeneous periods. The forecast, based on adequate robustness proof, has been provided for 1, 3 and 10 years ahead. It was revealed that the number of banks is expected to decrease almost two times, whereas total assets are envisaged to grow more than 2.5 times and the return on assets is unlikely to increase more than by 12% in 10 years by 2020.