Concentration and Competition in Modern Banking Sector of Serbia: Changes and Decomposition of Herfindahl - Hirschman Index

Paper considers the concentration (and competition) and changes in concentration in banking sector of Serbia (without Kosovo and Metohia) in the second half of 2010s and beginning of 2020s. In the first part of work the main theoretical and methodological questions of the research of concentration and competition were presented, and after them the specific characteristics of competition in banking sector, as one of the form of competition. Author emphasizes the importance of the choice of balance variables for the calculation of concentration indices and chooses next variables: total assets, deposits, capital, operating income, and loans. In the next part using the Herfindahl - Hirschman index, one of the most popular methods, it was shown that the degree of concentration is low, although close to moderate. At the end, on the basis of very rare used method it were decomposed the changes of this concentration index into two factors: component of inequality in market shares distribution, and component of the number of banks. It was shown that impacts of these two factors are not equal and vary through the years. All the types of its varying were classified into six groups depending on types of these factors changes and its relationships. Among the six possible types of changes the type VI prevails in many cases (decrease of inequality of market shares and decrease of number of banks where the first change is greater than second). On the other side, in 2021 (I-VI) for all variables type of changes I happens (increase of inequality and decrease of number of banks). Very interesting is also the fact that in general concentration index was not increased, although the number of banks constantly decreased and component of inequality in many cases had greater impact on the changes of concentration index than the component of inequality.