Abstract
Abstract This paper analyses the concentration of the banking system in Croatia and the impact of concentration on stability of the economic system as a whole over the period since 2002 to 2017. The level of concentration is usually related to the competitiveness of a particular sector, in this case the banking system, which affects the development and health of the country's entire economic system. The banking system, as the basis for the development of all other sectors of the economy, has been analysed here in the context of the concentration trend and efficiency in the selected time period using selected concentration indices: Concentration Ratio, Herfindahl-Hirschman Index, the Gini coefficient and the entropy measure using the variables of total assets of banks, loans granted, and received deposits. This research concludes that in the considered period of nearly 20 years, Croatia was among the EU countries with increased concentration level of the banking system.
Highlights
The concentration indices represent an essential element of a competitiveness analysis of a particular sector and the level of competitiveness determines the market structure as well as the market power of a certain sector
The notion of concentration always entails a negative connotation and a highly concentrated banking system is perceived as a cause of an inefficient functioning of a banking system but the economy as a whole where, due to that concentration, market competition is limited and availability of choice related to good services offered to the end user is reduced
The concentration in the banking system has been examined in various studies, the thesis that concentration has a negative effect on the stability of the financial system has not been proved
Summary
The concentration indices represent an essential element of a competitiveness analysis of a particular sector and the level of competitiveness determines the market structure as well as the market power of a certain sector. The widespread trend of the consolidation of banks and an increased concentration indicate a changed market structure of the economy. The higher borrowing rate indicates that the general public trusts the banking system which, is one of the essential prerequisites for its normal functioning and entails the fear of the overoptimism of banks, i.e. insufficient regulatory requirements and granting too many loans to those who do not meet the criteria, which leads to an increase in the share of non-performing loans. The research hypothesis of the paper is that the banking industry concentration in Croatia tends to increase over the period since 2002 to 2017, which was examined based on several variables an several concentration measures
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