Assessing lending market concentration in Bulgaria: the application of a new measure of concentration

This paper has a twofold interest. First, we construct new concentration measures that alleviate some shortcomings of the most frequently applied indexes, which are Herfindahl-Hirshman and Entropy measures. They also provide additional information about the way in which the loan portfolio is concentrated according to sectoral funding size. Second, we aim to find the factors that explain the banking lending concentration in Bulgaria. Applying a dynamic-panel model, it is shown that liquidity, loan portfolio level and the level of money in circulation influence the way in which the Bulgarian banks lend to different economic sectors. It should be mentioned that only liquidity level influences the loan concentration, if it is measured with Herfindahl-Hirshman and Entropy indexes, which suggest that these concentration measures perform worse than our global concentration index