This paper provides an empirical analysis of the relations between industrial enterprises and the banks in Russia from the perspective of enterprises, using data from a World Bank survey of 439 large and medium industrial Russian enterprises conducted in mid-1994. The paper finds evidence of a large "bad debt" problem in the Russian banking sector: one quarter or more of bank debt is overdue, and it was very common for the firms in the survey to fall into arrears with their banks. The nearly universal outcome in such cases was the capitalization of overdue interest and the rescheduling of principal. There are, moreover, signs of adverse selection operating, with firms that do hold bank debt tending to be financially less healthy than the average across a wide range of measures . However, there are also signs of positive developments in the Russian banking sector. The ease of obtaining bank credit is positively related to the creditworthiness of the borrower, a sign that banks at least sometimes evaluate the creditworthiness of their customers when making lending decisions. The paper also finds, somewhat surprisingly, no significant evidence of insider lending: although the number of enterprises which hold shares in banks is significant (about half of the firms in the survey), most enterprises are only minority shareholders and there is no apparent impact of shareholding on credit allocation.
