China's Commercial Banks' Profitability Impact Factors

Since December 2006, China has fully opened the banking sector to foreign banks. From then on, domestic commercial banks began to enter a new era of competition. Compared to some foreign banks with abundant funds, China's commercial banks are lack of high levels of profitability, management as well as innovation ability. So it is very important for the theoretical or practical field to improve the profitability and strengthen the core competitiveness of China's commercial banks. However, which are the key factors? How about the extent of their impact? This article tries to empirically study 14 sample banks in order to find possible ways of improving the commercial banks'profitability and provide some valuable information for its sustainable development.This article uses several materials of domestic and foreign researches for reference. Firstly, I analyze profit statuses of China's four major state-owned banks and the national joint-stock commercial banks. Then, I classify factors of profitability into the bank's own factors, industry factors and macroeconomic factors so as to specifically analyze them combined with knowledge of economics, management, and statistics. Finally, I select the data of 14 sample banks from 1994 to 2008 to make correlation analysis, variance analysis and regression testing on these three factors and Rate of Return on Assets (ROA). The results show that the bank's own factors are the most influential one in the short term. And the industry factors and external macroeconomic factors have a certain influence, which is much less than the bank's own factors. As a result, China's commercial banks can control the asset size and non-performing loans ratio, improve capital strength and management efficiency, reduce costs and expand balance-sheet business in order to enhance their own profitability.