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Concentration, competition and financial stability in the South-East Europe banking context

Concentration, competition and financial stability in the South-East Europe banking context

Guidi, Francesco ORCID: 0000-0002-2682-189X (2019) Concentration, competition and financial stability in the South-East Europe banking context. [Working Paper] (Submitted)

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The banking industries of South-East European (SEE hereafter) countries are the main channel through which financial resources are distributed across the region, and over the last decades they have witnessed deep structural changes, such as privatizations, consolidation and cross-border acquisitions. The purpose of this study is to shed further light on how concentration, competition and financial stability of these banking industries have changed over time. In addition, the our study investigated concentration and competition in the SEE banking industries affected their financial stability. By using alternative measure of market concentration and competition we found a reduction in the degree of concentration as well as market structures characterised by monopolistic competition. Further, using several measures of financial stability we found a reduction of non-performing loans, as well as a reduction in the probability of solvency of SEE banks. When analysing the effects of either concentration or competition measures on the financial stability of SEE banks, our analysis reveals that an increase in market concentration results in lower non-performing loans ratios, therefore indicating to greater financial stability of SEE banks. On the other hand, by using the Lerner index as a measure of competition, our findings reveal that an increase in banks’ market power has the effect of increasing non-performing loans ratios of SEE banks. Finally, by breaking down SEE banks in accordance with their ownership (i.e. domestic versus foreign ownership) and size (large vs small banks) we found mixed results in relation to the effect of both competition and concentration measures on the financial stability of SEE banks.

Item Type: Working Paper
Uncontrolled Keywords: Market concentration, non-performing loans, financial stability, banking
Subjects: H Social Sciences > HG Finance
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Last Modified: 15 Nov 2020 11:00
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: None
Selected for GREAT 2019: GREAT 1
Selected for REF2021: REF 4

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