The Research On Optimization Of Commercial Banks Asset Structure Based Upon The Three-Dimensional Effect Index

The asset structure of China’s commercial Bank presents a distinct difference among the industry which is actually induced by the variation of the profitability or the risk level. Certainly, as we know, differences between the assets structures of companies in variance industries, and there are striking differences between the asset structures of companies in the same industry as well, which have different business models in business practice. Diversified banking business model is the inevitable result of social division and the competitive market mechanisms. However, the attempt of various business models (in the article particularly means asset structure) is necessary. But unreasonable asset structure will inevitably bring about irrational effects. Therefore, judgment criteria of the asset structure should be standardization.How to optimize the asset structure is required in-depth study. In practice, every commercial bank has its own operational strategy and tactics, most of these strategies have not risen to the level into the economic hypothesis or theory. In the theoretically realm, there have been a lot of researchers study on such subject and also lots of achievements published around the world. Some researchers are focus on the mechanism of how the asset structure affects the behaviors of bank business and the return of investors’capital; others research focus on the how the asset structure influences the effectiveness of management. On the other hand, some researchers suggest optimizing the asset structure by using the mathematics of linear programming. Based on these previous studies, this paper will design a relatively method and mathematic route of assets structural optimization. By taking a sample of China’s 16 listed banks, this paper selects several indicators of profit and risk to construct an aggregative index of profit rate and integrated risk. Then this paper calculates the profit and risk factors of each asset and creates a three-dimensional productivity index, which decomposes the scale effect, technical effect and structural effects of profitability of commercial banks. Based on this, multi-objective optimization method (linear programming) is applied to optimizing the asset structure of commercial banks and also used into the actual evaluation of the assets structure effect of each bank in each year. Finally, the author suggests some policy prospects on macroscopic scale as well as microscopic sclaes.The content of this dissertation includes several interrelated parts.Comprehensive measurement of profit and risk level of commercial banksChanges in profit and risk level of each bank is a standard of whether the 16 banks’ asset structure are optimized. In this section, the first step is to choose banks’ profit indicators and risk indicators, and then to integrate the indicators into two indicators: comprehensive profit rate and risk factor, which is the objective function of the latter calculation of the profit index, risk index and the technology optimization of assets structure.The measurement of technical effect of each individual asset bankHaving been determined, the comprehensive profit rate and risk factor are considered as the effect of the change in each asset in order to measure the impact or importance of each asset to the 2 indexes, so the paper called it the technical effect. Profit technical effects of individual asset refers to the impact of a certain asset’s changes on the comprehensive profit rate. Risk technical effects of individual asset refers to the impact of a certain asset’s changes on the comprehensive risk factor. Benefits and risks of banks are affected not only by technical effect, but also by asset scale and structure, so when measuring the technical effect, we first eliminate the effects of the scale and structure to measure purely technical effects. Instead of purely technical effect, comprehensive technical effect is the actual measured technical effect after removing assumed constant scale and structure, which are impacted by the interaction of asset size and asset structure, and has combined effect with sthe scale and structure on the benefits and risks. On the basis of purely technical effect, the paper also focuses on comprehensive technical effect.Estabishing three-dimensional effect index and decomposing scale effect, technical effect and structural effectIn this paper, changes over time of comprehensive profit rate and risk factor are called the index. These two indices can be decomposed into three factors:the scale factor, structural factor and technical efficiency factors of individual asset. Under a combination of the three dimensions, this paper has established two indices. Comprehensive profit rate is the ratio of the comprehensive profit rate t of t-1 period, and comprehensive risk index is the ratio of the comprehensive risk index t of t-1 period. Three-dimensional effect index is a productivity index that contains the scale impact, the structure effect and the technical effect. It reflects the three factors’impact on the overall effect, which can be decomposed into three separate indices.In this section, based on the index methods, we will improve the existing Manchester index, design and construct the three-dimensional effect index used in this paper, then use the index to measure the changes in the benefits and risks and the influencing factors of each bank. These indices will be basis of the back of structural optimization.Assets structure optimization of commercial banksThis part mainly optimize the assets structure of commercial bank assets by nonlinear programming method.To establish objective programming model, it is necessary to determine the decision variables, objective function and constraints. In this paper, the decision variables is the proportion of commercial bank assets to total assets, called the assets structure variable assets. The objective function is profit-risk ratio and the constraints are the scale efficiency, technical efficiency, and other constraints.In the optimization process, a general theoretical model will be designed, and then we will use this model to optimize the asset structure for different types of banks and individual banksConclusions and recommendationsThis part is to make some general conclusions based on the former and finally put some practical suggestions. In the conclusion section, the paper summarizes the results of the bank’s risk assessment, technical index evaluation, the three-dimensional effect index measurement, asset structure optimization and other aspects. In the recommendation section, recommendations are made in four areas which sets the coordinated relationship between benefits and risks as a starting point.This dissertation has two innovations. First, the author designs a set of measurement of the risk and the profitability, which is via the route of scale effect, technical effect and the asset structure. This method is not the solid model, but a set of mathematic measurement which could be used into variable environment for the business and the market. Second, this dissertation calculates the optimal asset structure of 16 listed commercial banks in the background of the current Chinese market environment. Based on that data, the author point out the merit and fault of the asset structure in different banks, which could guide the managers of banks make strategy and the tactics.