Determinants of Market Concentration in the Albanian Banking System, An Empirical Analysis Using the Herfindahl-Hirschman Index

This study examines the determinants of market concentration in the Albanian banking system, measured by the Herfindahl-Hirschman Index (H-Index), using quarterly data from 2016 to 2024 sourced from the Central Bank of Albania. Employing an Ordinary Least Squares panel estimator approach, it explores the relationship between the H-Index and internal bank-specific factors—such as loans’ levels, ROE, ROA, and NPL ratios—as well as an external macroeconomic indicator like the Euro/ALL exchange rate. Building on prior literature, this research contributes a country-specific analysis of Albania’s banking sector. The findings reveal that performance indicators (ROA and ROE) and the exchange rate are statistically significant determinants of market concentration, while other variables show limited impact. These insights offer valuable implications for financial regulators and banking institutions seeking to understand and manage concentration dynamics in emerging financial systems.