The interrelationship among efficiency and concentration of banking system and its stability : evidence from Poland

Abstract

PURPOSE: This article aims to assess the impact of the efficiency of the banking sector and its concentration level on the stability of the banking system in Poland.

DESIGN/METHODOLOGY/APPROACH: The impact assessment relies on correlation and regression analysis. The stability of the banking sector is expressed in Z-Score indicator. The assessment of banking efficiency is based on the Return on Equity (ROE) after tax and on the bank cost-to-income ratio. The concentration level is shown as the share of the assets of Poland’s three largest commercial banks in the total assets of the banking sector. The calculations are based on panel data for the banking sector in Poland, for the period 1996– 2017.

FINDINGS: The results obtained suggest a positive influence of the return on equity after tax of the banking sector on the stability of Poland’s banking sector and no relationship between the stability of the banking sector and the level of its concentration or the bank cost-to-income ratio.

PRACTICAL IMPLICATIONS: Identification of the factors determining the stability of the banking system may contribute to its increase, and thus reduce the likelihood of banking crises. Ultimately, this will translate into an increase in the stability of the entire financial system as well as an increase in the stability of the entire economy.

ORIGINALITY/VALUE: The paper contains the author’s original research into stability of banking system in Poland. The study will contribute to the development of theories concerning factors of the stability of the banking system.