The Empirical Research On Bank Efficiency And Influencing Factors Of China’s City Commercial Banks

The city commercial banks started their reform in2003, and then entered a period of rapid growth. In recent years, the resolve of risk assets, restructure of banks, breakthrough of geographical restrictions and the introduction of strategic investors constitute a moving city commercial banks picture. City commercial banks are becoming more and more important in china. Meanwhile, with the deepening of reform and opening up of China’s banking industry, the banking industry is increasingly competitive. The city commercial banks will have to develop in the cracks of the state-owned commercial banks and medium-sized joint-stock commercial banks because of its inherent defects according to historical reasons. Thus, the city commercial banks have to improve the comprehensive competitiveness in the future to obtain sustainable development. The efficiency of commercial banks reflects the bank’s overall competitiveness, it is the most comprehensive evaluation of the performance of banks. Therefore, A correct evaluation of the efficiency of city commercial banks has practical significance to improve performance and enhance the competitiveness of city commercial banks.This paper depends on quantitative analysis and qualitative analysis, and on the basis of theoretical analysis, then uses DEA three-stage model which proposed by Fried et al.(2002) to study the efficiency of China’s city commercial banks. This paper can be divided into six parts.The first part describes the current development of China’s city commercial banks, as well as the need to study efficiency of China’s city commercial banks, and reviews the relevant papers. At the same time, this paper provides the main research ideas and methods, and suggests the innovations and weaknesses.The second part describes concept of efficiency, makes a detailed analysis and comparison with measure method of bank efficiency, then introduces the DEA three-stage model, that laid a theoretical foundation for subsequent empirical study.The third part analysis the efficiency of China’s city commercial banks. First,24city commercial banks covering China’s four economic regions (eastern, central, western and northeast) were selected as sample of panel data, and based on the dual method, this paper select total deposits, expenses, net fixed assets and net equity as input variables; select total deposits, net lending and net profit as output variable, at the same time, select four environmental variables. Then, this paper uses the DEA three-stage model to analysis the efficiency of China’s city commercial banks. The study found that there is a widespread inefficiency of China’s city commercial banks through the analysis, mainly because of the low inefficiency of pure technical efficiency and scale efficiency. That might due to the relax of regulation on cross-regional operation of city commercial banks since2007, which makes the banks pursuing size and speed while ignoring the benefits. Finally, the efficiencies of banks in four economic regions have been compared. The eastern city commercial banks were less efficient than the northeast and central banks. That was because, with the continuous expansion of the target market, the rapid expansion of the scale of city commercial banks brings the scale inefficient which affecting the technical efficiency of the bank itself. With the relaxation of cross-regional operations of city commercial banks, a positive correlation relationship cannot be found between the level of regional economic development and the efficiency of city commercial banks.The fourth part is theoretical and empirical analysis of influencing factors. First, this paper analysis the influencing factors. Then, this paper select the net profit as the dependent variable, foreign strategic investment, direct government ownership, non-performing loans and capital adequacy ratio as explanatory variables, then build a multiple regression model to analysis. The study found that the efficiency of China’s city commercial banks is positively correlate with the foreign strategic investment and capital adequacy, but it’s negatively correlate with the intervention of local governments and non-performing loan rate. And the correlation coefficient of the foreign strategic investment is most significant, impact on the efficiency of China’s city commercial banks; and the correlation coefficient of local government intervention is small, its impact is relatively limited.The fifth part is suggestion, based on the empirical results, this paper provides some recommendations (foreign strategic investment, ownership structure, risk management and capital replenishment mechanism) to enhance the efficiency of China’s city commercial banks.