Impact of Intangible Assets on Bank Performance in Emerging Capital Markets: Evidence from Russia

Journal of Corporate Finance Research. 2023. Vol. 17. No. 1. P. 44–53.

Andrey Egorov

The article examines the impact of innovations on the performance of commercial banks. The size of intangible assets is used as a proxy for innovation, since most innovations in the banking sector, unlike those in industry, are intangible and include licenses, software, employees’ knowledge and experience, corporate culture, etc. Most researchers agree that an increase in efficiency and performance of financial companies is mainly underpinned by intangible assets, especially their unobservable part. The purpose of the study is to identify the relationship between innovation and financial performance of banks. Thirteen largest systemically important Russian banks of various forms of ownership in 2011-2020 were considered
in the course of the research. This choice stems from the fact that these banks account for over 2/3 of the entire banking system in terms of assets, and have their own specifics compared to other banks both within Russia and in the world.

This study is limited by the fact that only large Russian banks were considered, while the specifics of medium and small banks, which have significantly fewer opportunities and are ready to take on higher risks, were not assessed. The scientific novelty lies in the fact that intangible assets are reflected in the work by a quantitative change used to assess the innovative activity of banks, for which an suitable approach is proposed. The results of empirical analysis demonstrate that the growth of intangible assets allows banks to increase the volume of both interest and commission income and slow down the rise of expenses, thereby ensuring profit growth. In turn, this stimulates increased liabilities, however, due to regulatory requirements, the share of equity remains almost unchanged at about 10% of the asset value. This trend indicates that even smaller banks can compete with larger ones by implementing innovation and building intangible assets.

Keywords: innovation, intangibles, stability, Financial efficiency, intellectual capital