Competitiveness and Concentration of the Banking Sector as a Measure of Banks’ Credit Ratings

Patrycja Chodnicka-Jaworska ()
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Patrycja Chodnicka-Jaworska: University of Warsaw

A chapter in Contemporary Trends and Challenges in Finance, 2018, pp 121-134 from Springer

Abstract: Abstract The aim of the paper is to verify the impact of the competitiveness of the banking sector and concentration on banks’ credit ratings. A literature review was prepared and as a result the following hypothesis was put: the bigger the banks from the countries where the banking sector is more concentrated and more competitive, the higher the banks’ credit ratings. The analysis has been prepared by using ordered panel data models on banks’ credit ratings with the use of quarterly data on a European banks’ sample. Long-term issuer credit ratings given to banks by the three largest credit rating agencies (S&P, Fitch and Moody) were used as a dependent variable. Banks’ notes are especially sensitive to the capital adequacy, the assets quality and the earnings factors. The concentration of the banking sector has got a significant impact on the notes proposed by Fitch and Moody’s, but the direction of the impact has been varied. Fitch notes are positively correlated with concentration indicators. According to their opinion, bigger banks on more concentrated markets can receive the financial support from the government, because in the case of default problems will have an influence on the whole financial system. Fitch ratings also react negatively to a higher competition on the financial market. Moody’s puts attention to insolvency problems of the financial market, and as a result its notes are negatively correlated with the concentration of the banking sector. A positive relationship between the competition and banks’ credit ratings has been observed in the case of Moody’s and S&P’s.

Keywords: Credit Rating; Banking Sector; Largest Credit Rating Agency; Factor Earnings; Long-term Issuer (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-76228-9_12

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DOI: 10.1007/978-3-319-76228-9_12

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