Evaluating the Relationship between Concentration Indicators and Profitability of Banking Industry in Iran

Determining the structure of a market plays an important role for policy makers to adopt efficient policies to enhance social welfare of their societies. This welfare is happened in a competitive framework. This study first attempt to measure the concentration level of banking industry and then examines its relationship with profitability measure according to the calculated values. The findings estimated indicate that the Herfindhal-Herishman index has a positive and significant effect on the profitability of the industry. The results also demonstrate that the trend of concentration indicators, except for year 2006, has not declined considerably during the study period Such that the concentration ratio for the largest four banks, all the 4 banks are active in the governmental sector, is near 0.57. Additionally, this reality in the Iranian industry is confirmed under the Herfindhal- Herishman indicator during the period. Therefore, we can conclude that the governmental sector is the dominant part of banking system in Iran and private sector does not play a crucial role.