FOREIGN OWNERSHIP, MARKET CONCENTRATION AND PROFITABILITY OF THE SERBIAN BANKING SECTOR

Abstract

This paper examines the relationship between foreign ownership, market concentration and profitability in the Serbian banking sector using 85 quarterly observations covering Q4 2004-Q4 2025. Profitability is measured by ROA and ROE, concentration by the Herfindahl-Hirschman Index, and foreign presence by the share of banking sector assets held by banks in majority foreign ownership. The autoregressive distributed lag approach (ARDL) estimates short-run and long-run relationships. Long-run results show positive associations of market concentration, foreign presence and capital adequacy with both profitability measures, while the global financial crisis and the COVID-19 pandemic are negatively associated with profitability. In the short run, market concentration is negatively and marginally associated with both measures at the 10% level, whereas foreign presence is positively associated with both measures and statistically significant at the 5% level. The findings suggest that regulators should monitor ownership and concentration developments while preserving competition, banking sector resilience and financial stability.