Studying the banking industry’s stability through market concentration indices

Abstract

The optimal market structure is one of the fundamental issues of economic theory. At that, companies’ efficiency in the market is associated with resource availability as a whole and finance resources, in particular. The structure of the banking market in terms of commercial loans determines a number of parameters of the economic system, such as its stability, growth potential, entrepreneurial activity, the state of commodity markets, the competitiveness of companies, etc. A comparative analysis of countries in terms of the ratio of commercial loans to GDP allows us to identify promising markets and strategic avenues for the development of the global banking industry and investment policy. However, a lack of regular and timely statistical reviews often impedes the identification. With the view to performing a comparative analysis for the EA/ЕU macroregion, the authors attempt to establish the types of the banking market in Russia based on a fuzzy rank approach using the probability theory. Using the data for 2009–2018, the authors assess bank concentration in Russia by a number of indicators. During the period under review, the volume of commercial banking lending in Russia experienced a steady increase. At the same time, there is a clear downward trend in the number of banks; several local “breakdowns” happen once every two years, i.e. the compression rate is reducing. Within the framework of the accepted gradation, the values of concentration indices taken separately do not allow arriving at a firm conclusion, since they indicate contradictory statuses of the sectoral market type. The integrated approach proposed in the paper helped find that, despite a relatively large number of participants in the Russian banking market, it should be primarily identified with a monopoly. At that, the values of the Herfindahl-Hirschman Index (HHI) and standard concentration fall within the oligopoly boundaries. This indicates the fuzzy nature of the sectoral market. The empirical results obtained are of use when analyzing competition, developing antimonopoly regulation measures, adjusting the banking sector development strategy and investment policy.