Study On The Development Model Of Community Banks In China

This paper aims at researching on the roles which commercial banks with different characteristics of community banking play on Chinese economy and the selection of the modes for their community strategy. With the continuous progress of interest rate liberalization, the continuous improvement of multi-level capital market and the vigorous development of internet finance, China’s banking industry is facing increasing challenges. With increasing competition among the industry peers, commercial banks are facing declining growth rate of profit. The community banking strategy, as the essential measure to deal with the above challenges and to find new growth point, has attracted widespread interest among the financial industry.The paper starts from the concept and criteria of community banking, summarizes core functions and operating characteristics of community banking and analyses the current development of various banking institutions in China. Using empirical tests, including Pearson correlation test and Granger causality test, this paper thoroughly analyses the differential effects of commercial banks with various operating characteristics of community banking on macro aspects in China, including promoting economic growth, increasing employment rate, enhancing credit availability, etc.The choice of development mode for community banking is affected by the external environment, and China’s current regulatory system, the financial disintermediation and internet finance are the three most important factors that influence the function positioning and transformation of commercial banks. The development practice of community banks in the United States, Germany, Japan and other countries has great value of reference for the mode selection of China’s community banking. By making comparative analyses on different countries, we could see that community banking presents a variety of characteristics in changing economic environment, geographical endowment, population structure and other factors.China has a huge economy and a vast territory. Besides the unbalanced development of regional economy. China has to face many social problems such as unreasonable income distribution, an aging population structure, etc. Based on community banking’s core functions and characteristics in different countries, the paper proposes that two different modes for community banking could co-exist in China:one is featured by "localization and relationship-based" and mainly applied to small and medium sized banks; the other one is characterized with "large scale and transaction-based" and mainly for large banks. The paper also makes comparison of the two modes in terms of service network construction, target customer positioning, the main composition of liabilities and assets businesses, etc., concluding that each mode has its own advantages and could be complementary to the other.This paper uses research methods of the Dynamic Panel Model and comparative study, starts from the size of banks, the credit business, and the net interest margin, makes both theoretical and empirical analysis on the performance-based affecting factors of the two modes for the development of community banks, and proceeds with the profitability abilities of China’s community banking. Research results suggest that the small and medium sized community banks should minimize the effect of the net interest margin on its profitability, and large community banks should focus on the development of high value-added products and services, increase the product penetration rate and the customer stickiness, and increase the value contribution of customers.This paper concludes that by learning from the development history and operating experience of those international and mature community banks, considering the history and current situation of China’s banking industry, taking into account of the economical background of entering the "New Normal" and accelerating the financial reforms, developing community banking is an inevitable trend for commercial banks in China. Banks should be clear about the choice of community banking developing mode, and the government should make further adjustments for the regulation environment. Compared with the small and medium sized community banks, those large community banks with large scale, reliable safety, convenient channels and strong comprehensive service ability are supposed to highlight their advantages on liability structure management and pricing. Because of the dual influences of the financial disintermediation and internet finance development, corporate clients would have less dependence on bank services and the significance of retail credit operation would be increased, and increasing the income of the intermediary business will be an essential measure for large commercial banks to maintain and increase their profitability.