Study On Efficiency Of Chinese Commercial Banks

Commercial banks are not only the main body of financial system but also national economic lifeline. The competitive power of Chinese commercial banks is one of hot topics. After joining WTO, Chinese commercial banks are faced with tremendous pressure , Commercial banks' efficiency has been becoming a main problem in the development of our commercial banks. In order to improve competition and technical efficiency, our country has taken many measures. But this has no effect. For example, in order to reduce non-performing loan rate, the four state-owned bank transfer 1.4 million billon non-performing loans to Asset Managed Company in 2000.The paper has considered pre-tax operating profit and performing loans as output, and then used SfA (Stochastic Frontier Approach) to measure efficiency of Chinese banks from 1998 to 2003, Finally the paper has analyzed impacted factors. The conclusion show us that our commercial banks' efficiency is too low and state-owned bank' efficiency is lower than other commercial banks' efficiency; Acquisitions and mergers of Banks and intermediate business development(intermediate business income / total operating income) are positive interrelated to bank efficiency, but non-performing loans is negative interrelated to bank efficiency; property right system is one of the key factor .Finally the paper has proposed some suggestions to improve our commercial bank' efficiency.The main body of this paper is composed of four parts except the foreword and concluding remarks.First part has commented on the empirical measurement of technical efficiency and literature review. Mathematics Programme Approach, Revised Mathematics Programme Approach, Deterministic Statistical Frontier Approach and Stochastic Frontier Approach can measure technical efficiency, but each of the four approaches has advantage and drawback. Finally the part has commented literature review of efficiency of bank.Second part has analyzed effects caused by factors, including bank scale, Acquisitions and mergers of Banks, property right system, non-performing loans and intermediate business, on efficiency of bank.Third part has measured efficiency of Chinese bank by using SFA and analyzed factors. Considered applied capital and labor as input, pre-tax operating profit andperforming loans as output, the paper has measured efficiency of Chinese bank during the period 1998 to 2003 and analyzed effect caused by factors, such as intermediate business, non-performing loans, bank merger and so on .The conclusion tells us average efficiency of Chinese bank is too low; Efficiency of state-owned bank is lower than other commercial bank in every year; intermediate business, non-performing loans, Acquisitions and mergers of Banks and property right system are all notable interrelated to efficiency of bank.Fourth part has the paper has proposed some suggestions to improve our commercial bank' efficiency. The first is to carry out the reformation of Chinese bank, including reformation of state-owned banks' property right system and mixed operation; the second is to speed up the development of intermediate business; the third is to reduce the rate of non-performing loan.