Determinant factors of risk-taking in Georgian Banking Institutions with Machine Learning

Abstract

Economical development in perspective is unthinkable without the successful functioning of the commercial banking system, as it has a direct impact on practically all areas of the market economy by determining the vector of its development. The paper aims to discuss and analyze banking risk and its factors. It involves analysis of factors affecting the profitability of banks and correlations between different variables that are crucial for identifying relationships between key aspects. An analysis is performed on the example of Georgian Banks. To respond to this question, 14 active commercial banks of Georgia operating in the years 2013 – 2020 were analyzed using Machining learning and ordinary least squares (OLS) . This research also applies the fixed effect model by evaluating Hausman. Results showed specific correlations between a variety of factors affecting the risks of commercial banks. Research emphasizes the importance of performing proper risk management strategies and their influence on the overall profitability of the bank.