Changing competition in the Lithuanian banking market and its impact on investment activities

Lietuvos bankų vaidmens šalies finansų rinkoje augimas reikalauja išsamesnių bankų veiklos tyrimų. Straipsnyje, remiantis kiekybiniais rodikliais ir bankų veiklos analize, atliekamas Lietuvos bankų konkurencijos indėlių ir paskolų rinkose tyrimas. Vertinant svarbiausią bankų konkurencijos rodiklį - koncentraciją, atsižvelgiama į bankų skaičiaus, Herfindahl-Hirschmann indekso ir keturių didžiausių bankų rinkos dalies kitimą. Užsienio šalių mokslininkai plačiai diskutuoja apie bankų konkurencijos ir finansų rinkos liberalizavimo poveikį bankų veiklos plėtrai. JAV iki šiol atskirta investicinė ir komercinė bankininkystė, tačiau kintanti konkurencija tarptautinėje ir vidinėje finansų rinkoje skatina bankų siekimą išplėsti veiklą. Šis straipsnis analizuoja konkurencijos finansų rinkoje įtaką investicinės Lietuvos bankų veiklos plėtrai.Recent changes in the Lithuanian banking market require more exhaustive studies. Changing competition, ways of assessing competition in the banking market are discussed. Influence of the competition on the banks expansion to non-traditional - investment market is shown. Banking competition is analyzed according to these groups of factors: - Banking market concentration indices; - Financial strength of the banking system; - The use of banking assets in different financial fields and foreign markets; - Changes in the prices of services; - Activity of foreign banks. To measure the degree of concentration in a banking market we examine three indices of concentration: - Number of depository institutions; - Herfindahl-Hirschmann Index (HHI); - Four-firm concentration measure (C4). HHI almost doubled in Lithuanian loans and deposits market in 1996 - 1999. C4 index has grown from 64,6% to 86,6% in loans market and from 60,9% to 89,6% in deposits market. Since the end of 1993 constant reduction of depository institutions in the Lithuanian banking market is observed. 28 depository institutions operated at the end of 1993, while at the end of 1999 only 10. Additional research of HHI was done, state banks as one group. In this case HHI of the Lithuanian loans market diminished from 3224 to 2818. Lithuanian deposits market HHI grew from 2621 to 3342. Different trends indicate diminishing relative importance of state banks in the loans market. Banking financial strength measures are: - Assets. - Capital and reserves. - Number of branches in Lithuanian banks. Lithuanian banks assets almost doubled in the period of 1995 - 1999. Capital and reserves more than tripled in the period of 1997 - 1999. Number of branches in Lithuanian banks is constantly diminishing since 1994. Lithuanian banks activity in non-traditional markets fell in the period of 1997 - 1999. In the same period assets of Lithuanian banks grew in foreign countries. Analyzed assets of Lithuanian banks in foreign countries has grown from 1,7% to 4,1%. Growing foreign banks competition in the Lithuanian banking market has positive effects on expansion of financial services. This research led us to the conclusions: 1. Many of the applied indices indicate growing competition in the loan market of Lithuania. 2. Lower barriers for foreign entrants to the Lithuanian banking market and Lithuania's integration to the EU lead to prognoses of the further banking consolidation and of the growing activity of foreign competitors; 3. Growing competition in the loans market results in higher activity of the Lithuanian banks in securities market; 4. Competition of foreign banks urges Lithuanian banks to provide more services for their clients in securities market