The Relationship of Concentration and Profitability in Banking Markets

Abstract

The aim of this paper is to evaluate the relationship between the degree of concentration and profitability in the banking markets in the Czech Republic, Austria and Belgium. First, the paper presents current scientific research on this topic, which it is based on. Next, the Herfindahl-Hirschman Index is calculated for selected banking markets for the period of 2003–2012. The calculation of concentration is made based on three variables - total assets, receivables from clients and client deposits. These concentration values are compared with the development of earnings in selected banking sectors using correlation analysis; the necessary tests for normality were calculated previously. We conclude that there is an inverse relationship between the degree of concentration and the size of the profits of the banking sector in the case of the Czech Republic; correlation was not confirmed for the banking sectors in Austria and Belgium. It is possible to use the paper's results for further scientific research and findings as well as for actual economic policy, which is currently focusing on stricter regulation of the banking sector