Concentration in Regional Consumer Loan Markets in the Context of Growing Digitalisation of Banking Services in Russia

Abstract

Due to the dominance of the largest banks, the issue of increasing concentration and monopolisation of the Russian banking sector is discussed in regards to the competition in the industry. The Bank of Russia set the task to increase competition and reduce concentration in the financial sector, including at the regional level. This task can potentially be solved using new financial technologies, digital banking services and remote access technologies. The paper aims to assess the dynamics of concentration in local consumer loan markets in 2015–2021, as well as to answer how new financial technologies and digitalisation can increase competition in the banking sector at the regional level. The study calculated concentration indices and number of banks in consumer loan markets of Russian regions and the country as a whole. To this end, data from the website of the Bank of Russia, both for the retail loan market and the housing loan market, were analysed. The findings show that concentration indices did not decrease during this period. Simultaneously, the regional average number of banks issuing consumer loans decreased less than the total number of banks due to the entry of some banks into new regional markets. This means that the expansion of remaining banks to more regions, including through digitalisation and remote methods, has the potential to increase competition in the industry. However, at this point, only few consumer loans and deposits were provided by banks that do not have branches in a given region. Therefore, there is little evidence to suggest that new financial technologies are already increasing competition in the banking sector of Russian regions.