DOES THE OLIGOPOLISTIC POSITION OF BANKS AFFECT THE PERFORMANCE OF THE BANKING SECTOR IN THE FEDERATION OF BOSNIA AND HERZEGOVINA?

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Almir Alihodžić

Abstract

The level of banking concentration has increased significantly in the banking sector of Bosnia and Herzegovina as a result of the successful completion of privatization, the formation of new banks, the slow transition and rapid liberalization. Rapid liberalization has introduced strong competition in the domestic banking sector on the one hand, while on the other hand there has been an increased concentration of some larger banks in the system.The main goal of this research will be to analyze the correlation between the basic measures of the oligopolistic position of banks and their impact on improving or deteriorating the performance of domestic banks, such as return on assets (ROA), return on equity (ROE) and net interest margin (NIM). The survey period covers the years from 2008: Q1 to 2020: Q4 on a quarterly basis. The following variables were used as independent variables in the model: HHI market concentration index in the context of loans, share of foreign banks in the total ownership structure of banks (FB), bank size (BS) and growth rate of total loans (GRTL).The interdependence of variables in this study was tested via the OLS regression model (FE model as well as GLS model). Both models were suitable for obtaining results via the Hausman test. The results of the research showed that the strongest (positive impact) on the first dependent variable, i.e., on return on assets (ROA), was achieved by the following independent variable: foreign-owned banks (FB). On the other hand, the strongest negative impact was recorded by the following independent variables: the size of the bank (BS) as well as the market concentration index for loans (HHI_loans). The strongest (positive impact) on the second dependent variable, i.e., return on equity (ROE), was achieved by the following independent variables: growth rate of total loans (GRTL) as well as the variable related to foreign-owned banks (FB). On the other hand, the strongest negative impact was recorded by the following independent variables: market concentration index for loans (HHI_loans) and bank size (BS). The third independent variable, i.e., net interest margin (NIM), had the strongest positive impact on the following independent variables: foreign-owned banks (FB) and credit growth rate (GRTL). On the other hand, the strongest negative impact was recorded by the following independent variables: concentrations for credit placements (HHI) and bank size (BS).

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