The Antecedents Of The Profitability Of State-Owned Commercial Banks

Profitability is one of the most widely accepted measures of the competitiveness of a commercial bank. The long-term profitability and the continuous increase of a bank's market value are critical for almost all commercial bank, and thus the key indicators of a bank's performance.Since the entering of WTO in 2001 and the opening of renminbi retail business to foreign banks in 2006, China's banking industry has undergone much more intense competition than before. Due to historical problems, some Chinese commercial banks were relatively weak in asset quality and profitability, compared to their foreign counterparts. Although Chinese state-owned commercial banks had undergone a series of changes and improvement, compared to leading foreign companies, there are still areas to be improved, such as new businesses introduction, operational efficiency, etc. The improvements in such areas are critical to the profitability of state-own commercial banks.The research objective is to identify key antecedents of the profitability of the state-owned commercial banks. Based on the conceptualization of profitability and prior literature in banking research, this study compares and analyzes the key financial and operational data of the local banks and leading foreign banks to identify the potential antecedents of the profitability of banking corporations. By integrating theories from banking research and macro economics, this study proposes a relational model on the profitability of commercial banks in China market. The research model was tested with the panel data, which includes the financial and operational data of the key state-owned commercial banks in China from 2004-2008. Results of the research are discussed. Theoretical and managerial implications are also presented.