Empirical Research On Efficiency Of China's Commercial Banks

Efficiency of China's commercial banks from a practical view is investigated in this dissertation with emphasis on the current situation, influencing factors, efficiency measurements and evaluating methods and contributions are made to the reform of China's commercial banks, which brings forth important theoretical and practical significance in improving bank efficiency and profitability.First, the background and significance of studying China's bank efficiency are presented in this dissertation by reviewing the current situation of bank efficiency at home and abroad, with problems identified in current efficiency study. Bank efficiency was then defined and classified, including scale efficiency, scope efficiency, X efficiency, cost efficiency and profit efficiency. With the input and output of bank efficiency studied, non-parametric and parametric methods that work out bank efficiency are introduced, and functions to calculate bank efficiency are summed up.Based on a case study of fourteen Chinese commercial banks from 1998 to 2004, with labor, physical capital and loanable funds chosen as input variables, interest income and non-interest income as output variables, technical efficiency, scale efficiency and cost-efficiency of China's commercial banks are investigated by data envelopment analysis and stochastic frontier approaches. The results show coinsidence with reality of Chinese banks and are meaningful. Technical efficiency of Chinese banks was going down from 1998 to 2002 and then slowly going up from 2002 till now; the scale efficiency of state-owned banks from 1998 to 2004 showed a declining trend, indicating scale of the state-owned banks was too large to achieve scale economy, while joint-stock banks show relative stable scale efficiency and have achieved scale economy. The Chinese commercial banks generally have a low cost efficiency, which has caused serious waste of resources from 1998 to 2004, with joint-stock banks having a low cost efficiency only about 0.5 and the state-owned banks only 0.15 around. Reasons for low cost efficiency come from both the inefficient allocation of investment and non-technical efficiency. From 1998 to 2004, the profit efficiency of China's commercial banks presents declining trend year by year, and the profit efficiency of state-owned banks was lower than joint-stock commercial banks, but the gap between the two is not significant.From three aspects of macroeconomic, industrial and microeconomic factors, with the technical efficiency selected as a dependent variable and bank scale, profitability, asset allocation, corporate governance and other variables as the independent variables, a case study is carried out in this dissertation to reveal how these factors can influence bank efficiency by using random forests algorithm. The result reveals that in our country the main factors, including bank size, stability and profitability, influence bank efficiency significantly while other factors such as asset allocation, corporate governance and innovation did little influence. The main considerations about how the factors influence Chinese bank efficiency are categorized into twofold: the property right structure and the market structure. Results from the case study it is concluded in this dissertation that the property right structure and the market structure are not mutually exclusive; on the contrary they are complementary and mutually beneficial. It is on this basis that some related policies are recommended in this dissertation.