Study On Credit Allocation,Government Intervention And Bank Performance

Since the eruption of global financial crisis,the whole world economy has recovered slowly,more and more scholars are turning their focuses on the misallocation of resources.Currently,China's economic development is in the process of falling back after rising,those issues caused by credit misallocation for a long time are exposing to sunlight in an accelerating manner,making the economic development enters into dilemma and excess backward production capacity cannot be effectively disposed of.For the last few years,in order to stimulate the economic recovery,Chinese government keeps the prudent monetary policy.However,substantial economic development is still facing asset shortage,rare shortage of money was took place in banking industry,the overall profitability of banking industry fell sharply and non-performing assets are everywhere.At the forefront of upgrading and transformation of China's economic development,the allocation of credit resources in banking industry determines the way of economic development and the future development direction of the country.Thus,how to effectively alleviate the issues related to the credit misallocation is still a pressing concern and the study on such misallocation issues has important theoretical and practical significance.Firstly,in order to analyze the problems of credit allocation in China fully,basing on the analysis of the current status and influence of the credit misallocation in China,this paper discusses the historical reasons for the credit misallocation in China.After analyzing credit allocation of each stage,the paper finds that credit misallocation in China has the profound historical root.During the process of economic reform,the government intervened the allocation of bank credit resources,which had scarified the efficiency of banks while maximizing national interest,as well as suppressed the process of financial reform in China.However,the banking industry supported and intervened by governments became fragile,thus bank reform forced at each stage was incomplete,making it difficult to effectively alleviate the degree of credit misallocation.Secondly,basing on the actual national conditions and the conclusions of last chapter,an overlapping generations model considering banking health and corporate heterogeneity is made to analyze the reason why there is persistent credit misallocation in China.The results show that,after a huge negative impact on the net capital,when the net capital is lower than the threshold,banks will prefer to throw a lot of cheap credit resources to those enterprises with low production efficiency but high quality collaterals by a manner of "small profits and quick returns",making a continuous vicious circle of credit misallocation and the overall economic development will enter a "credit trap" state.Basing on the base model,this paper also explores the effect of government intervention.Results show that governent intervention has two sides.The effective intervention by local government on bank credit resources allocation can ease the friction in credit market.But the support given by the local government to the low efficency firms is one of the essential factors to lead such resource misallocation.Thirdly,a sensitivity analysis model was made in the paper for empirical verification on the theoretical conclusion about the impact of local government intervention on bank credit misallocation.The regression results show that there is severe credit misallocation in China.Local governments will affect the judgment and credit pricing by banks on the qualification of enterprises,which are supported by local governments by providing such enterprises with tangible and intangible securities,thus those enterprises could obtain a large number of credit resources with lower price,which damaging the allocation efficiency of bank credit resources.Meanwhile,a trans-log profit function model is constructed in the paper to analyze the the influence of geographical distribution of commercial bank credit on the bank profit efficiency in China with a stochastic frontier analysis method.Empirical results show that expanding the coverage area of bank credit resources contributes to the promotion of operating profit.However,the government intervention damages the profit efficiency of banks.With the persistent credit misallocation and the local government intervention,the efficiency on operating profit of each commercial bank has declined continuously,the descent speed of those large commercial banks with more governmet intervention is faster than those medium and small ones.At last,basing on the conclusions of the whole paper,this paper gives some recommendations on how to alleviate credit misallocation in China effectively from the aspect of correcting the improper government intervention,setting up the enterprise credit system and information platform,improving the diversification of bank income structure and regional credit business properly.The innovations in this paper lie in:(1)Enriching the existing study view of the reason why there is continuing credit misalloction in China.In order to analyze the reason,this paper chooses from the view that after a hit of a negative impact,banks will change their preference of heterogeneous enterprise.(2)When making theoretical analysis on the reason why there is continuous credit misallocation,different from existing literatures,this paper combines the actual conditions in China that taking the health degree of banking industry as an endogenous variable of collateral value,instead of only focuing on pledge constraints.(3)This paper expands the research view of the relationship between the government intervention and credit misalloction.Currently,the studies on credit allocation efficiency are mostly based on Jeffrey Wurgler(2000),however,the model is lack of theoretical basis and unable to make effective analysis on the factor of local government intervention,and almost all the studies from the view of credit quantity.Therefore,basing on the study of theoretial analysis,this paper improves the related model and analyzes how local governmets affect the credit allocation efficiency from the view of credit price and credit quantity.