Lerner Index: Competition is at average levels in the banking system

According to the latest survey on the banking system made by the Bank of Albania, private banks in the country have a moderated market power regarding the level of competition between them. By using the Lerner Index which measured the capabilities of 15 private banks in the country, the Central Bank came to the conclusion that the ability of banks to set prices for services and products is at average levels.

The indicator of this index resulted to 0.48, an average level of the index which ranges from a high of 1 to a low of 0. The higher the number, the greater the market power of a bank or a banking system. The measurement of this indicator was based on the total of banks’ assets for the period of 2004-2014, on the prices offered by banks and bank’s marginal cost.

For the period of 2005-2009, the Lerner Index measurement resulted at low levels, showing a higher level of competition in the banking system at that time. In 2009, the index number reached its lower point, while in the years that passed it increased. This shows that banks took power to set prices for their products and services and as a consequence the competition decreased.

This has also been affected by the increase of banks’ assets prices and the increase of insecurity in the market during the economic crisis that started in 2008. The economic crisis has dimmed the competition in the banking system, says the Lerner Index.

News source: Scan TV

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