Market Concentration in banking sector of Serbia: decomposition of the Changes in 2016–2021

On the basis of five balance variables in bank balances (total assets, deposits, capital, operating income, and loans), the Hirschman–Herfindahl indices for period 2016–2021 are calculated. The indices values are decomposed by the Bajo and Salas approach, based on the fact that the Hirschman-Herfindahl index is a special case of the Hanna-Kay index. So the impacts of number of banks and dispersion of its market shares are established. Then we classified the concentration changes, depending on relations between the rates of changes of two factors. They were unequal and vary during the years. Among the identified types of changes there was the most frequent decrease of HHI, caused by decrease of inequality of market shares and decrease of number of banks, where the first was greater. Finally, in 2021, the number of banks decreased with an increase in the dispersion of their shares in the three variables, which from a theoretical point of view is a clear condition for the growth of the concentration index. In the case of the remaining two variables, the dispersion of the share was reduced, so that the realized change in the Hirschman–Herfindahl index belonged to the second type.