Consolidation of the Banking Sector: Determinants and Consequences

The article aims at substantiating the theoretical and methodological foundations of research in bank consolidation and assessing its consequences in order to identify the relationship between consolidation and the banking market structure. The main preconditions and priorities of consolidation are systematized and generalized, taking into account the theory of financial integration and synergetic interaction. This approach will contribute to deeper understanding of the motives and trends of consolidation in modern conditions. It is noted that the transnationalization and concentration of capital form the basis for market consolidation, which goes through a certain life cycle, the latter being specified by the authors. It is concluded that the universal, integrated nature of financial business and the formation of financial business ecosystems is becoming more widespread. The main changes in financial mediation are identified. Statistics of banking concentration in Ukraine is given. The dynamics of concentration ratio for the period from January 1, 2000 to August 1, 2020 was analyzed, revealing that the market is moderately concentrated. It is stipulated that the higher the combined share of the five major banks in the banking sector, the less likely a domestic merger and acquisition is. Accordingly, the domestic banking market, compared to European ones, has significant potential. It is concluded that the high values of profitability indicators speak of excess demand over supply in the banking market; thus, competitive intensity under such conditions is minimal, even with the withdrawal of most banks from the market. Thus, competition is only declared. In the future, we should expect increased non-interest rate competition. It is noted that competitive intensity depends on the concentration, dynamics and profitability of the banking market. Competition assessment, carried out using non-structural measures, H-statistics, Boone indicators and Lerner index, showed that, since the an individual bank does not build up its range of activity through consolidation, or by redistributing its market share among participants, but due to the growing demand for banking services, and remote services in particular, competition is actually reduced. The research confirmed that the processes of concentration, consolidation and competition are interconnected, and this connection should be identified to better understand the formation of the banks’ functional strategy and their choice of the business model.