Concentration and competition in the Brazilian credit market

• Published date: 01 October 2021
• Author: Felipe Borilli
• Date: 01 October 2021
• DOI: http://doi.org/10.1002/jcaf.22509

Received: 4 May 2021Revised: 22 June 2021Accepted: 24 June 2021

DOI: 10.1002/jcaf.22509

RESEARCH ARTICLE

Concentration and competition in the Brazilian credit

market

Felipe Borilli M.Sc.

Brazil Avenue East, PassoFundo, Brazil

Correspondence

FelipeBorilli, Brazil Avenue East, 926,

PassoFundo, 99050-144, Brazil.

Email:felipe.borilli@stud.unifi.it;

borilli.felipe@gmail.com

Abstract

Competition and concentration effects in the banking sector is still a highly

object questioned in the public policy. Problems of asymmetric information and

high interest rates prompt the discussion on whether bank competition is good

or bad for efficiency, or more generally, for social welfare. In recent years, a lot

of research work has been carried out investigating the nature of competition in

the banking industry. Since the 2008 financial crisis, competition in the bank-

ing industry has been characterized with low interest rates, low credit growth,

increased regulation and compliance requirements. The objective of this study

is to analyze the national credit market by calculating and analyzing concentra-

tion and competition indicators, between 2010 and 2020. To compare and esti-

mate indexes of concentration, such as the Herfindahl-Hirschman index and

competition through the Lerner index. The results suggest that the concentra-

tion has decreased in the period considered so as competitiveness, suggesting

that there is less competition in the market. Despite the limitations pointed

out, the results suggest that bank concentration in the Brazilian financial mar-

ket has been decreasing over the last few years due to an increase position and

importance of new players such as Digital Banks, Fintechs and High-Techs firms,

which caused a decrease in the market share of large banks. Although, competi-

tion levels are not improving, showing that the market shareis being absorbed by

Financial Institutions with a considerable size and perhaps not by new entrants

in the market.

KEYWORDS

competition, concentration, financial institutions

1 INTRODUCTION

Competition and concentration effects in the banking sec-

tor is still a highly object questioned in the public policy

debates (Degryse and Ogenna, 2005). Problems of asym-

metric information and high interest rates prompt the dis-

cussion on whether bank competition is good or bad for

efficiency, or more generally, for social welfare.

In recent years, a lot of research work has been carried

out investigating the nature of competition in the bank-

ing industry. Since the 2008 financial crisis, the competi-

tion in the banking industry has been characterized with

low interest rates, low credit growth, increased regulation

and compliance requirements (Martins, 2012). Along with

these threats, major changes have taken place in the bank-

ing sector in the recent years. A decade ago, the largest

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