| Abstract [eng] |
Economic theory provides ambiguous answer about the relationship between concentration and financial stability. Competition in banking sector can have positive effect by speeding up bank's response to crisis, which in turn enhances financial stability. However, according to competition – stability hypothesis, banks with higher market power tend to take much higher risk on their loan portfolios. At the same time, the contrary competition – fragility hypothesis states that banks with higher market power incur lower general risk. The main aim of Master’s thesis is to compare Baltic countries banking sectors and evaluate the relationship between concentration and financial stability of them. Lithuanian, Latvian and Estonian banking industry analysis in the period 2008 – 2018 was carried out to reach the aim of the thesis. The research includes analysis of scientific literature, calculation of relative market indicators, comparative and dynamic banking industry analysis. Research results show that 3 main banks dominate Baltic market in 2018: Swedbank, SEB and Luminor. Banking concentration ratio in Latvia amounts to 70% while in Lithuania and Estonia it is around 80%. In empirical part of work are performed correlation analysis and Granger causality test, when two variables are analyzed together by examining their interaction between them. Selected variables 5 large's bank loan concentration and z - score that reflects stability. Correlation analysis showed that average correlation of variables exists in Lithuania. Meanwhile, in Latvia correlation of these factors is strong, but in Estonia weak. Granger test results show that relationship between concentration and stability of Baltic banking sector cannot be analyzed in general, due to different interaction results. Lithuania and Estonia may conclude that finiancial stability is cause of concentration. In Latvia, according to different number of Granger data delays, there is reciprocal relationship where concentration can be used to predict financial stability and vice versa. In conclusion, raised work's hypothesis, due to existing relationship between concentration and stability in Baltic banking sector, cannot be rejected Future research directions. In order to increase representativeness of research, it is possible to extend time period for analysis and to supplement number of countries concerned. By extending research's sample would allow selecting countries with less concentrated banking sectors compared to Baltic banking market. Further direction of research could be to establish relationships between other concentration indices and measures of financial stability. Also are possible investigations on other factors affecting concentration or financial stability of banking.  . |
