Competition, Concentration and Foreign Capital in the Polish Banking Sector (Prior and During the Financial Crisis)

Abstract

The aim of the study is to estimate the level of competition and concentration in the Polish banking sector in 1997-2009 (prior the financial crisis and during the crisis). In this paper the Panzar and Rosse model (P-R) and the Lerner index (LI) have been used for the evaluation of competition. Concentration in the Polish banking industry was analysed by using concentration indices (k bank concentration ratios (CR5) and the Herfindahl-Hirschman indices (HHI)). Empirical analysis shows that the degree of competition in the Polish banking market in the period between 1997-2007 followed a slight upward trend. Results demonstrated also a slight decrease in competition in 2008-2009, caused by financial crisis. This results are confirmed by the Panzar and Rosse model (P-R) and the Lerner index (LI). The same channels (prior the financial and during the crisis) which had an impact on changes in the competition of banking sectors in the euro zone countries, had an impact on the Polish banking sector due to the involvement of the capital from the euro zone. It might also mean that that increase of foreign participation stimulated competitive pressures. Furthermore, foreign capital was positively correlated with concentration indices.