The Risk of Credit Concentration: A Study of the Construction Sector

Abstract

This study investigates the risk of credit concentration in the construction sector in Albania using secondary data and calculates the Herfindahl-Hirschman index (HHI) for the total loan portfolio in Albania, particularly for two large banks operating in the Albanian market, Credins Bank and Raiffeisen Bank for the period 2017-2021. The purpose of this study is to discover and evaluate the level of financing in the construction sector and analyze the risk of loan concentration in the construction sector from the banking sector as a whole, and in these two banking institutions in particular. The method used for this study includes collecting and analyzing secondary data from various sources, such as annual financial reports and statistics of the construction sector in Albania. The study results show that Credins Bank and Raiffeisen Bank have different HHI indices for loans in the construction sector in the years studied. The loan portfolio's concentration level for financing the construction sector is higher for Credins Bank, while Raiffeisen Bank shows a lower concentration level. At the end of the study, relevant conclusions and recommendations are provided, where it is recommended that financial institutions and regulators carefully monitor the situation and take measures to promote diversification and address the issue of credit concentration in the construction sector to reduce potential risks.