The Theory And Practice Of Profit Efficiency Of Chinese Commercial Banks

On Jan 6th 2004, the State Council announced that it would bestow 45 billion US dollars foreign exchange to the Bank of China and the China Construction Bank. It symbolized a new stage of our commercial banks reform. After that, most commercial banks actively introduce strategic investors, encourage innovation, enhance the corporation governance and improve risk control in order to prepare for the banking open according to the rules of WTO. This article does the research on the profit efficiency and the influencing factors of our commercial banks and tries to provide some advice on banking reform. Profit efficiency is a new field of efficiency research.The article first concludes the literature of banking profit efficiency of domestic and foreign researches and its influencing factors, describes the development of banking efficiency research from the cost efficiency to the profit efficiency, and summaries the superiority of the profit efficiency comparing to the cost efficiency. The profit efficiency research covers the efficiency maximization not only of input but also of output. It is helpful for us to analysis the efficiency situation of our commercial banks. Afterwards, by using the Stochastic Frontier Approach (SFA),Alternative Profit Efficiency (AP),and Frontier4.1 software, the article surveys the profit efficiency of 4 state-owned commercial banks and 10 joint stock commercial banks during 1996—2004. It shows that the profit efficiency of commercial banks is very different from each other, and the joint stock commercial banks have higher profit efficiency than the state-owned commercial banks. As a whole, the profit efficiency of our commercial bank is very low, and it has potential to grow. Then the article investigates the relativity of three factors to the profit efficiency—innovation ability, corporation governance and the ability of controlling risk. The result indicates that the enhancement and improvement of innovation ability, corporation governance and the ability of controlling risk redound to promoting our commercial banks'profit efficiency. Finally, according to those results, the article put forward some suggestions.In a word, the article discusses the theory and practice of the profit efficiency of our commercial banks. It is a significative attempt to survey the profit efficiency and its influencing factors.