Interrelation between Concentration in Banking Sector and its Main Performance Indicators: Case of Russia
Interrelation between Concentration in Banking Sector and its Main Performance Indicators: Case of Russia

Author(s): Rogneda I. Vasilyeva
Subject(s): National Economy, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: bank; market structure; concentration; assets; liabilities;
Summary/Abstract: The research is aimed at determining the interrelation of Russian banking sector concentration for most assets and liabilities in 2008-2015 with its main performance indicators, such as Return on Assets, Return on Equity and Capital Adequacy. We used a set of indices from the industrial organization theory to evaluate the level of concentration and unevenness in Russian banking sector and proposed the method of Herfindahl-Hirshman index decomposition to separate concentration caused by reduction in number of banks and by growing heterogeneity in banking sector. Having tested 4 statements concerning correlation between banking sector concentration and its main performance indicators, we have not found any functional connection between a particular bank share in total capital or assets and its performance, but revealed positive influence of concentration in banking system as a whole on its performance both at a snapshot and in time series. Additionally, we recognized a relatively negative contribution of small and medium-sized banks to Russian banking system's efficiency in the period of recession, whilst during recovery they, though being less effective than larger banks, form a zone of stability. Taking into account the support given to large banks by the state, we still bear in mind not only natural but also artificial origin of such a result. Finally, we state the need of effective control over the structure of the banking system.

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