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The market share of the largest banks declined in 2023

2024-03-12 07:23:00, Ekonomi CNA

The market share of the largest banks declined in 2023

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The concentration of the banking market in the largest banks declined last year.

The statistics of the Bank of Albania show that the weight of the two largest banks to the total assets of the sector last year decreased to 41.23%, from 42.2% that had been the year before.

Meanwhile, the share of the three largest banks in the sector has further decreased. At the end of 2023, the three largest banks of the sector owned 56.82% of the total assets of the sector, down from the level of 57.46% reported at the end of 2022.

In 2018, the banking sector started a cycle of consolidation that gradually reduced the total number of banks. From 16 banks that operated in the market in 2018, their number has currently decreased to 11.

Compared to 2018, the market share of the two largest banks decreased by 3.7 percentage points, while the market share of the three largest banks decreased by 0.8 percentage points.

Despite the decrease in the number of banks in the market over the last five years, market concentration indicators remain close to the threshold of competitiveness, based on theoretical evaluation methods. The most common way to measure the degree of market concentration is the Herfindahl-Hirschmann Index (HHI), which is constructed as the sum of the squared market share of each firm. The threshold below which a market is generally accepted as competitive is 1500 or 0.15.

According to data from the Bank of Albania, at the end of last year the HHI indicator, measured according to total assets, was at the level of 0.14, down from the level of 0.15 at the end of 2022.

Many experts believe that a further consolidation of the sector cannot be ruled out in the medium term. Strong growth in capital requirements and large investment needs, especially related to technology, can make it difficult for small banks to achieve efficiency.

The entry of new investors and mergers that created banks larger in size up to this stage have had a positive effect in terms of increasing risk appetite and returning an upward credit cycle to the economy. For 2023, the new loan also reached a record value of almost 319 billion ALL, increasing by 14.5% compared to 2022.

Mergers between existing banks have reduced the overall number of banks, but have created healthier and more competitive banks. According to preliminary data from the Albanian Association of Banks, all banks closed the year 2023 with a positive financial result, while the total profit at the sector level reached a record value of 28.5 billion ALL, an increase of 19.5% compared to 2022./ Monitor Magazine