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The Relationship Between Bank Concentration and Interest Rates

Author

Listed:
  • Tijana Kaličanin

    (Singidunum University, Belgrade, Serbia)

  • Zoran Grubišić

    (Belgrade Banking Academy, Belgrade, Serbia)

  • Sandra Kamenković

    (Belgrade Banking Academy, Belgrade, Serbia)

Abstract

The aim of this paper was to analyse the relationship between market concentration and market interest rate. Taking into thought the relationship between the level of concentration within a market and the level of competition, it can be deduced that an increment in concentration results in a decrease in competition. In order to test the above mentioned relationship, the authors used a panel dataset covering the period 2010Q1-2019Q4. The set includes quarterly data of all banks that operated in the Republic of Serbia. First of all, a correlation analysis was applied to determine whether there is a quantitative agreement between interest rates and concentration measures, and also a regression analysis i.e., econometric evaluation of panel regression models. In order to test the hypothesis, a total of 12 regression equations were applied. Results indicate that that the concentration indicators have a statistically significant and negative impact on the overall active interest rate in only two regression models, which is inadequate to support the hypothesis that there exists a systematic influence of concentration in the banking industry on interest rates. As a conclusion, the regression analysis imposes that the variations of the total loan interest rate can be explained to the greatest extent by the systematic and robust influences of the key policy rate of the NBS and the interannual inflation rate for the given quarter, as well as by the robust tendency of a linear decline over time.

Suggested Citation

  • Tijana Kaličanin & Zoran Grubišić & Sandra Kamenković, 2023. "The Relationship Between Bank Concentration and Interest Rates," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 12(3), pages 23-39.
    • Handle: RePEc:cbk:journl:v:12:y:2023:i:3:p:23-39
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    More about this item

    Keywords

    market concentration; loan; interest rate.;
    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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