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Market Power and Bank Profitability: Evidence from Montenegro and Serbia

Author

Listed:
  • Zoran Grubišić

    (Belgrade Banking Academy, Belgrade, Serbia)

  • Sandra Kamenković

    (Belgrade Banking Academy, Belgrade, Serbia)

  • Tijana Kaličanin

    (Belgrade Banking Academy, Belgrade, Serbia)

Abstract

This study investigates the relationship between profitability and market power in the banking sector using data from the financial reports of the banks that operated in Serbia and Montenegro, covering the period from the first quarter of 2010 to the last quarter of 2019. In order to investigate this relationship, determinants of bank profitability are split between internal and external. As the external determinants, selected ratios of concentration were calculated and used in order to measure market power. The total of sixteen panel regression models were applied, eight for each country. The results indicate that variations of return on assets and return on equity in Serbia can be explained by the variations of the ratios of concentration. On the other hand, results of the panel regression model applied for the banking sector of Montenegro does not give enough argument to support such explanation, and bank profitability can be explained by bank efficiency to some extent.

Suggested Citation

  • Zoran Grubišić & Sandra Kamenković & Tijana Kaličanin, 2022. "Market Power and Bank Profitability: Evidence from Montenegro and Serbia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(1), pages 5-22.
    • Handle: RePEc:cbk:journl:v:11:y:2022:i:1:p:5-22
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol11no1-1.pdf
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    References listed on IDEAS

    as
    1. Athanasoglou, Panayiotis P. & Brissimis, Sophocles N. & Delis, Matthaios D., 2008. "Bank-specific, industry-specific and macroeconomic determinants of bank profitability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 121-136, April.
    2. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    3. Demirguc-Kunt, Asli & Laeven, Luc & Levine, Ross, 2004. "Regulations, Market Structure, Institutions, and the Cost of Financial Intermediation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(3), pages 593-622, June.
    4. Abdul Latif Alhassan & Michael Lawer Tetteh & Freeman Owusu Brobbey, 2016. "Market power, efficiency and bank profitability: evidence from Ghana," Economic Change and Restructuring, Springer, vol. 49(1), pages 71-93, February.
    5. M. Nur Rianto Al Arif & Tara Bilqis Awwaliyah, 2019. "Market Share, Concentration Ratio and Profitability: Evidence from Indonesian Islamic Banking Industry," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(2), pages 189-201.
    6. Abdul Alhassan & Michael Tetteh & Freeman Brobbey, 2016. "Market power, efficiency and bank profitability: evidence from Ghana," Economic Change and Restructuring, Springer, vol. 49(1), pages 71-93, February.
    7. Vesna Bucevska & Branka Hadzi Misheva, 2017. "The Determinants of Profitability in the Banking Industry: Empirical Research on Selected Balkan Countries," Eastern European Economics, Taylor & Francis Journals, vol. 55(2), pages 146-167, March.
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    Cited by:

    1. Gabriel A. Ogunmola & Fengsheng Chien & Ka Yin Chau & Li Li, 2022. "The Influence of Capital Requirement of Basel III Adoption on Banks’ Operating Efficiency: Evidence from U.S. Banks," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(2), pages 5-26.

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    More about this item

    Keywords

    banking sector; bank profitability; market power; competition.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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