Competition in Albanian banking sector

Matraku, D., & Gjoka, E.

Albania has a relatively new financial system, where banking system is the most developed financial service in our country, with a share of 94, 4% of the total financial services. This is a phenomenon of countries with emerging economies, which proves that there is greater reliance on the state economic development of the banking sector, by effecting from the households to the biggest investors and the government. As in any market, competition is an important aspect also in banking system. It affects the efficiency of the market and the variety and quality of products. But, as the banking system has great influence on the Economic growth and the development of a country, the level of competition definitely affects their performance too. The main motive for the realization of this work is the great importance that the banking system, and competition in this market, plays in developing countries, including here Albania. Given that the financial system is dominated by the banking system, banks are the main channel for the transfer of funds from the lender to the borrower. Also investments are very sensitive to interest rates, the level of competition reflected in prices, quantities and types of products and services, which will definitely affect the level of investments and economic growth. The goal is to understand the characteristics of competition in our banking system and study the relationship between the level of concentration, competition and the level of interest rates in the banking market. Defining the characteristics of banking market will be fulfilled in two main directions: first, in describing the characteristics of the banking market, trying to see with which market structure it resembles the most, and secondly by reference to empirical studies held for our market as well as comparison with the region. By comparison with the region we found that in Albania operates a smaller number of banks and higher fees are applied. Also lending interest rates are higher than in the region, although the differences are not very large. Albanian banking system is more concentrated than the systems of most European Union countries; however, the concentration level is justified to some extent by the short lifespan of our banking system and its level of development, compared with EU countries. Economic theories of competition in the banking system study the linkage of the financial stability and its efficiency. From our observations, we have noted that the increase of the concentration was associated with increased efficiency (and vice versa). This finding supports the idea of efficient markets, whereby the concentration increase is due to higher efficiency. Also, a link between stability and competition was noticed, where the reduction of market power and the increasing competition, increased the undertaken risk by the banking sector, jeopardizing stability.



APA citation

  • Matraku, D., & Gjoka, E. (2014). Competition in Albanian banking sector. International Journal of Business and Management, II(1), 18–28.

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