Evolving Banking Systems in the CIS: Geopolitical Profiles, Business Models, Performance and Risk

This thesis investigates the evolution, structure, and performance of banking systems in the Commonwealth of Independent States (CIS) through an integrated geopolitical, economic, and financial lens. It examines how post-Soviet trajectories, ownership structures, and business models shaped the development and resilience of banks in the region. Combining qualitative thematic analysis with quantitative econometric techniques, the study provides both contextual and empirical insights into the determinants of banking sector stability and performance.

The research first establishes a theoretical and methodological foundation, drawing on systematic literature review and thematic analysis of academic literature in languages other than English (LOE – e.g. Russian) to identify key regional features and conceptual gaps—particularly the absence of the Heartland concept in financial and banking discourses.

Building on this, the thesis develops the Geopolitical Profile Index (GPPI) using Principal Component Analysis (PCA) to capture the region-specific geopolitical positioning of CIS countries. Empirical analysis utilizing fixed-effects panel regressions on a macro-level dataset of 12 CIS countries over the period 1995–2024 (yielding 360 country-year observations) reveals that stronger geopolitical profiles are significantly associated with higher bank profitability but lower financial stability. Specifically, the results indicate a distinct risk–return trade-off, where geopolitical prominence increases systemic vulnerability (measured by Z-scores and NPL ratios) while simultaneously boosting net interest margins as banks price in the elevated risk.

Further, utilizing a unique, manually collected micro-level dataset of 183 banks across CIS countries from 2010 to 2024 (yielding over 1,800 bank-year observations), the study employs k-means clustering and panel regression techniques to explore how different ownership types—state-owned, private, foreign, and captive—influence business model choices and financial outcomes. The clustering identifies three distinct Bank Business Models (BBMs): Retail-Oriented, Diversified, and Deposit-Rich Conservative. The empirical findings demonstrate significant heterogeneity: captive banks exhibit persistently higher credit risk (NPL ratios) regardless of their business model, while private banks adopting diversified funding structures achieve superior performance (higher ROA and ROE) and greater stability.

Overall, the thesis contributes to understanding the interaction between geopolitics, ownership, and business models in shaping banking system dynamics in the CIS. By integrating geopolitical analysis with banking sector metrics, it offers a novel, region-specific perspective on financial stability and strategic risk in transitional economies.