Yang, Hengjun
(2020)
The performance of commercial banks in China during 2012-2019: Analyzing the cost efficiency and profitability determinants.
[Dissertation (University of Nottingham only)]
Abstract
The paper analyzes empirically what the cost efficiency level of Chinese commercial banks and how bank-variables and macroeconomic variables determine the bank profitability. The paper finds that Chinese banking sector holds a quite high level of cost efficiency for the period 2012-2019. The change of price of labour will affect bank cost remarkably, which implies the problem of heavy staff in Chinese banking system. Besides, the banking system is considered to be under economies of scale, since banks could gain more profit by rising inputs. it is found that big banks are more efficient than small banks overall. In terms of bank profitability, the paper finds that the impaired loans to gross loans ratio, equity to total assets ratio, cost to income ratio, cost efficiency, GDP growth rate and inflation rate are negatively correlated to bank profitability，and lagged return on assets, bank size, loans to deposits, z-score, diversification and concentration ratio have positive influence on bank performance. The study discovers increasing capital adequacy will reduce bank profitability. In addition, banks can generate more profit by expanding the scales. Additionally, the paper finds that Chinese banks could rise loans to deposit ratio to improve bank performance, although they may face high liquidity risk. The paper obtains an unexpected result of the relationship between cost efficiency and bank profitability, in which increasing cost efficiency cannot enhance Chinese commercial bank profitability. At the end of the paper, some limitations in regression results are put forward, at the same time, the paper gives two improved methods.
Key words: Chinese commercial banks, cost efficiency, bank profitability
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