This study examines the determinants of bank profitability in China over the period . The determinants are divided into three groups: bank-specific, industryspecific and macroeconomic variables. The two-step General Method of Moments (GMM) system estimator is used. The results show that there is a positive relationship between bank profitability, cost efficiency, banking sector development, stock market development and inflation. We report that low profitability can be explained by higher volume of non-traditional activity and higher taxation. Moreover, we confirm that there is a competitive environment in Chinese banking industry. Furthermore, we propose policy actions that should be taken to improve bank profitability in China.2
This article examines the effect of GDP growth on bank profitability in China over the period . The one-step system GMM estimator is used to test the persistence of profitability in Chinese banking industry. The empirical findings suggest that cost efficiency is positively related to bank profitability, while lower profitability can also be explained by higher taxes paid by banks. In addition, there is a negative relationship between GDP growth and bank profitability. Furthermore, the results show that (1) the profitability in Chinese banking industry is significantly affected by the level of non-performing loans, and (2) Chinese banks with higher level of capital have lower profitability. Finally, we find that the departure from a perfect competitive market structure in Chinese banking industry is relatively small.
Purpose-This study aims to test the impacts of risk-taking behaviour, competition and cost efficiency on bank profitability in China.Design/methodology/approach-We use a two-step Generalized Method of Moments (GMM) system estimator to examine the impacts of risk, competition and cost efficiency on profitability of a sample of Chinese commercial banks over the period 2003-2013. Findings-We find that credit risk, liquidity risk, capital risk, security risk and insolvency risk significantly influence the profitability of Chinese commercial banks. To be more specific, credit risk is significantly and negatively related to bank profitability; liquidity risk is significantly and positively related to Return on Assets (ROA) and Net Interest Margin (NIM) but negatively related to Return on Equity (ROE); capital risk has a significant and negative impact on ROA and Net Interest Margin (NIM) but positive impact on ROE; there is a significant and negative impact of security risk on bank profitability (ROA and NIM). It is found that Chinese commercial banks with higher levels of insolvency risk have higher profitability (ROA and ROE). Finally, higher competition leads to lower profitability in the Chinese banking industry and Chinese commercial banks with higher levels of cost efficiency have lower ROA. In other words, Structure-Conduct-Performance paradigm rather than Efficient-structure paradigm holds in the Chinese banking industry.Originality/value-This is the first paper to investigate the impact of different types of risk, including credit risk, liquidity risk, capital risk, security risk and insolvency risk, on bank profitability. This is the first study which uses more accurate measurements of efficiency and competition compared to previous Chinese banking profitability literature and which tests their impact on bank profitability. Our findings not only provide a general picture on the risk, efficiency and competition conditions in the Chinese banking industry, but also give valuable information to the Chinese government and to the banking regulatory authorities to make relevant policies.
This paper contributes to the empirical literature on banking profitability by testing the impacts of competition and shadow banking on bank profitability using a sample of 100 Chinese commercial banks over 2003-2013 with 417 and 395 observations. The current study fills the gaps in the empirical studies by examining the competition in different banking markets (i.e. deposit market, loan market and non-interest income market) in China and further evaluating their impacts on bank profitability. The findings show that the non-interest income market has a higher level of competition compared to the deposit market and loan market. It is further reported that a lower level of competition in deposit market leads to an increase in the profitability of Chinese commercial banks. Finally, the results suggest that shadow banking improves the profitability of Chinese banks.
This paper evaluates the determinants of bank performance in China. In particular, we examine the effects of stock market volatility, competition and ownership on bank performance in China. The sample comprises a total of 11 banks (four state-owned and seven joint-stock commercial banks) listed in the Chinese Stock Exchanges. The period under consideration extends from . The Generalized Methods of Moments (GMM) difference and system estimators are applied. Empirical results show that high level of stock market volatility can translate into higher Return on Equity (ROE) and Excess Return on Equity (EROE). Rather than leading to improved profitability, the labour productivity has a negative impact on Economic Value Added (EVA). Ownership does not have any effect on the profitability of Chinese banking industry. The bank profitability in terms of ROE and EROE is lower in the banking industry with higher competition. When using the GMM with ROE-COC and ROE, we find that high taxation has a negative impact on both state-owned and joint-stock banks, while the capital level is negatively related to joint-stock commercial banks. With regards to the other two performance indicators (EVA and NIM), the result suggests that higher cost efficiency and labour productivity improve the performance of both state-owned and joint-stock commercial banks. Large volume of non-traditional activity is the explanation of poor performance of stateowned commercial banks, while higher credit risk, lower taxation and mature banking industry are helpful in improving the performance of joint-stock commercial banks.2
This paper investigates the inter-temporal relationship between banking profitability, competition and risk of a sample of Chinese commercial banks by employing several profitability and risk indicators and using Seemingly Unrelated Regression (SUR) under a panel data framework over . The results support the Structure-Conduct-Performance (SCP) theory which states that there is a negative impact of competition on bank profitability. We also find that banks with higher profitability normally operate in a less competitive environment. The results have potentially important implications for the government and banking regulatory authorities to make relevant policies.JEL Classifications: G21, G32, C50, C23
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