Study On The Efficiency And Its Measurement Of China’s Commercial Banks

With the further opening of China’s financial markets, foreign investment andforeign banks continully influx in Chinese capital market, thus the banking industrywill face an unprecedented impact in such areas as human resources, business,technology and business philosophy. Compared with the international advanced largebanks, Chinese commercial banks remains a significant gap in many ways, and theconcentrated expression of this gap is just inefficient. As deeply changing in marketdiversification, business diversification and transaction entities diversification, themarket risk, operational risk and credit risk domestic banking faced will become morecomplex. Therefore, it has become a core concern that whether China’s commercialbanks have steady operational efficiency by the financial supervisory authorities andmarket parties generally.Based on Data Envelopment Analysis (DEA) and the Malmquist-DEA, this papermeasures the efficiency and Malmquist TFP index of commercial banks in Chinacombined with their panel data over the period2006to2010. In order to achieve thefrontier analysis of multiple-input and multiple-output DEA output model, referring tothe "intermediary method", this article has constructed a comprehensive index systemwith the number of employees, physical capital and loanable funds for input indicators,and loans, net profit for output indicators. For selecting of study samples, it has beenconsidered four factors, whether it could represent the overall situation of China’scommercial banking, whether their business environment could comparable, whetherdata interception range have a special significance, whether data sources areauthoritative. Eventually the paper has selected the sample set for four state-ownedcommercial banks and ten shareholding commercial banks.After measuring the efficiency and analysizing the empirical results, theconclusions following have been made: Firstly, the average value of the overall efficiency of China’s14commercialbanks ranged from1(FIB) and0.644(ABC), and the four state-owned commercialbank efficiency is significantly lower than the efficiency of the joint-stock commercialbanks; technology efficiency is also different, in addition to individual banks, theefficiency performance of most commercial banks upward overall the review period.But in2008, the efficiency of several commercial banks declined, particularly in theICBC, CCB and BOC; The scale efficiency has shown a decreasing returns to scale tofour state-owned commercial banks in the the review period. Except the Bank ofCommunication, scale efficiency of most remaining joint-stock commercial banks arerelatively stable; And from2006to2010, Agricultural Bank of China has put the mostserious input slack according to the overall commercial banks and steadily year byyear. The one of joint-stock commercial banks would more concentrated in2008-2009,when there was in the implementation phase of China’s FOUR TRILLIONINVESTMENT. As for four state-owned banks, except Agricultural Bank did notoccur input slack phenomenon.Secondly, Malmquist TFP index of14commercial banks improved during2006to2010, the Technical Efficiency, Change Scale Efficiency Change, Pure TechnicalEfficiency Change have impoved steadily, and technological progress was moreobvious; during the review period, China’s commercial banks efficiency has changedtoward the good direction; in addition to the Agricultural Bank of China and ChinaEverbright Bank, Malmquist total factor productivity of the rest commercial banks hasmostly increased decreased during2006and2010, especially in China MerchantsBank, Fujian Industrial Bank, Bank of China and Guangdong Development Bank.MPI constitute indicators, overall efficiency, pure technical efficiency and scaleefficiency, of14commercial banks have remained stable, the changes mainlyoccurred in the indicator of technological progress, and it would have relative greatereffect for most banks. Thus, in order to improve their efficiency, banks should reducethe poor of deposit and loan, and speed up the rhythm of the progress of bankingtechnology, integrated full-service system, improve the core competitiveness, such asretail banking, investment banking business, in the entire banking business proportionof the management. Thirdly, combining the MPI indicators and DEA efficiency, it could be roughlyable to separate China’s commercial banks into four categories, namely, Banks withhigh competitiveness and a fast pace of progress: China Merchants Bank andIndustrial Bank; Banks with low competitiveness and a faster pace of progress: ChinaConstruction Bank of China and Guangdong Development Bank; Banks with highcompetitiveness but a slow pace of progress: China Minsheng Bank, ShenzhenDevelopment Bank, Shanghai Pudong Development Bank, China Everbright Bank,Bank of Communications and China CITIC Bank; and Banks with lowcompetitiveness and a slower pace of progress: Industrial and Commercial Bank,Agricultural Bank and Huaxia Bank.