What Explains the Low Profitability of Chinese Banks?

Garcı́a-Herrero, Alicia

doi:10.2139/ssrn.1514291

Cited by 145 publications

(210 citation statements)

References 29 publications

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“…Our study contributes to the empirical literature in the following ways: 1) it examines in depth different types of risk; and 2) uses more accurate measures of efficiency (SFA) and competition (Lerner index and 3-bank concentration ratio). It therefore provides more robust results with regard to the impacts of competition and efficiency on bank profitability compared to Garcia-Herrero et al (2009) …”

Section: Discussionmentioning

confidence: 99%

“…Using a sample of Chinese commercial banks over the period 2003-2009, Tan and Floros (2014 investigate the inter-relationship between risk, profitability and competition in the Chinese banking industry. Two types of risk are considered -credit risk and insolvency risk -while competitive conditions are measured by the Lerner index.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Due to the fact that not all the banks have available information for all the years, we opt for an unbalanced panel dataset in order not to lose degrees of freedom. We use three different profit measures, which are ROA (Athanasoglou et al, 2008;Garcia-Herrero-et al, 2009), ROE (Dietrich and Wanzenried, 2011), and NIM (Dietrich and Wanzenried, 2011Athanasoglou et al, 2008;Tan and Floros 2012a, 2012b, 2012c.…”

Section: Datamentioning

confidence: 99%

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The profitability of Chinese banks: impacts of risk, competition and efficiency

Tan

Floros

Anchor

2017

RAF

104

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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.

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Section: Discussionmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Datamentioning

confidence: 99%

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The profitability of Chinese banks: impacts of risk, competition and efficiency

Tan

Floros

Anchor

2017

RAF

104

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“…Accordingly, several studies around that time focused on estimating the effect of corporate governance on asset quality (Grove et al 2011;Liang et al 2013;O'Sullivan et al 2016). In keeping with extant literature (García-Herrero et al 2009;Liang et al 2013), we use (i) net non-performing assets to total loans and advances (Nnpa_ttladv); (ii) gross non-performing assets to total loans and advances (Gnpa_ttladv); (iii) addition of net non-performing assets to total loans and advances (Nnpa_additn_ttladv) and (iv) addition of gross non-performing assets to total loans and advances (Gnpa_additn_ttladv) as our measures of asset quality. While the first two of these measures capture the quality of the stock of bank assets and proxy for bank's cumulative lending behaviour, the next two are essentially flow measures that capture the quality of its current lending practices.…”

Section: Dependent Variable: Bank Outcomesmentioning

confidence: 99%

Bank Ownership, Board Characteristics and Performance: Evidence from Commercial Banks in India

Sarkar

2018

IJFS

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Abstract:We study the effect of board governance in state-owned and private banks by undertaking a study of commercial banks in India that has both bank groups. Covering a ten-year period from 2003 to 2012 that witnessed a large number of governance reforms in India, the results of our empirical analysis provide evidence of strong ownership effects with board independence exhibiting a significant positive correlation with the performance of private banks and a significant but negative correlation with the performance of state-owned banks. The effect of CEO duality is negative in state-owned banks where incidence of CEO duality is high. We find that a longer CEO tenure has significant positive effects on bank outcomes with these effects strengthening in the later years of CEO tenure. Our results have governance implications for strengthening the composition of board of directors and CEO tenure especially in state-owned banks.

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“…The performance of FCC banks was below world standard. The annual reports of the Association of Banks in FCC, namely: Palestine, Jordan, and Lebanon showed that the average return on assets (ROA) for FCC banks is 0.66, where the world standard of ROA is 1.8% according to (García-Herrero et al, 2009). Moreover, the world bank reports (The World Bank, Available at: https://research.stlouisfed.org/fred2/search?st=RO A+in+GCC+counries) during the last five years [2010][2011][2012][2013][2014] showed that the average ROA to GDP ratio in FCC region is 0.23 and the average ROE to GDP is 2.13 percent as shown in Table 1.…”

Section: Introductionmentioning

confidence: 99%

97 The effect of bank-specific factors and unstable macroeconomic environment on bank efficiency: evidence from FCC

Salem

Rahman

2016

Int. j. adv. appl. sci

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The banking industry in the area of Fertile Crescent Countries (FCC) was faced by instability in their political and economic conditions in the last decade, especially during the Arab spring revolutions. The current study investigates empirically the efficiency of banking sector in the troublous areas in developing countries such as FCC. The efficiency estimates of individual banks are evaluated by employing the multiple regression models. This paper examines the effect of a selected bank-specific factors, and unstable macroeconomic conditions on bank efficiency in a selected FCC banks for 10 -year's period [2005][2006][2007][2008][2009][2010][2011][2012][2013][2014]. The unbalanced panel data used in this study is derived from Bank Scope data network. The empirical findings are almost consistent with the expected results. Bank deposits and bank size have influence on bank efficiency. Economic conditions found with no effect on efficiency. It was found that liquidity of a bank does not influence bank efficiency, but bank diversification is related with efficiency in FCC.

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What Explains the Low Profitability of Chinese Banks?

Cited by 145 publications

References 29 publications

The profitability of Chinese banks: impacts of risk, competition and efficiency

The profitability of Chinese banks: impacts of risk, competition and efficiency

Bank Ownership, Board Characteristics and Performance: Evidence from Commercial Banks in India

97 The effect of bank-specific factors and unstable macroeconomic environment on bank efficiency: evidence from FCC

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