Analysis and Evaluation of HHİ and Beneficiary Ownerships of the Banking System of Azerbaijan

As of June 1, 2023, 24 banks are operating in Azerbaijan, 2 state and 22 commercial banks. Concentration in the banking system is high. One factor determining the increase of concentration on the financial market as a whole and the decrease of competitiveness in the banking market is the reduction in the number of banks. The other is that banks, one of which belongs to the state and three to ruling families, enjoy privileges under state protection. In particular, the higher-than-moderate concentration observed in deposits means that large banks owned by the ruling family are more attractive to depositors than small banks. The result is that the concentration process in Azerbaijan's banking sector (concentration of the sector in one or several hands) is changing from the low and medium concentration border to the upper level. The reason for this is the decrease in the number of small and medium-sized banks in the sector. So, the dynamics of the Herfindahl-Hirschman Index (HHI) according to the share of the loan portfolio, deposit portfolio, assets, and net profit in the system show negative changes in the last 5 years.This article presents the results of calculations using the HHI, widely used in international practice, to assess Azerbaijan's concentration in the banking system in the last 5 years and the degree of competitiveness in the banking system and beneficial ownership in the banking system of Azerbaijan