Decomposition of Concentration and Diversification Measures of Activity : The Case of the Commercial Banks Sector in Poland

In our paper we have tried to present the literature describing methods for decomposing measures of concentration and diversification, as well as tried to explain reasons for the changes in the level of concentration and diversification in the sector of Polish commercial banks in 1996-2005. When the scale of banks' activities is measured on the basis of the values of balance sheet assets, it turns out that in most cases the changes in the level of concentration or diversification are driven by the stronger impact of the increased uniformity of share distribution, rather than the impact of the decreasing number of institutions in the sector. After replacing assets with the value of income from main banking activities, the yearly changes are better explained in most cases by the scenario assuming a single directional impact of the decrease in the uniformity of share distribution and the decrease in the number of commercial banks. In general, we conclude that the overall picture of the level of concentration, its yearly and ten-year changes, as well as the reasons for these changes, depends strongly on the decision how to measure the scale of commercial banks' activities