The industrial concentration of the banking sector is a key element used to analyze the competitiveness and market power within the banking industry, while the profitability of the banking sector shows the measure of its business success. This paper aims to identify, investigate and describe the link between industrial concentration and profitability, both theoretically and empirically, using the example of the banking sector in the Republic of Croatia. After analyzing the concentration of the banking sector and its profitability in the period from 1998 to 2022, the Pearson correlation coefficient was used to examine the relationship between the used indicators of industrial concentration (concentration ratio and the Herfindahl-Hirschman index) and indicators of the profitability of the Croatian banking sector (measured by the rate of return on assets and rate of return on capital). Research results indicate the existence of a correlation between industrial concentration and the profitability of the banking sector, which seems to be subject to macroeconomic trends; positive in periods of economic growth, and negative in periods of crisis. Within the analyzed period, the number of banks has drastically decreased while the concentration of the banking sector increased significantly. Extremely high positive correlation between industrial concentration and the profitability of the Croatian banking sector detected at the end of the analyzed period indicates a market share increase within five largest banks, which cover over four fifths of the entire banking sector, which led to an exceptional growth in their profitability.