Analysis On The Factors Of Profit-making Ability Of Commercial Banks In China

Our country have been started the reform of the banking industry since2003, and the entire banking sector is showing rapid growth trend, by the end of the2011,the net profit of all the commercial bank reach￥1.04trillion, a high record whose total profit occupy half of the China’s listed companies,￥2.85billion a day on average. Hong Qi, the president of the Mingsheng Bank, said in2011that the high profit of the bank made us embarrassed to release, and we can see from the data and bank executives that the profitability of the bank can be described as super. However, in2012during the "two sessions", according to many media for the banking "profits" questions, a delegate of the National People’s Congress on financial industry believe that describing banking industry with "profiteering" is actually a lack of respect. In fact, the profit of the banking industry is low. As we all known, the calculation of the high interest refers to the unit return on invested proceeds. At present, the return on assets of the banking is only1%, a few years ago, only a few tenths percent, while general manufacturing have reached5%, so the banking industry is not the one of huge profit nor high profit. How is the Chinese banking profitability, which factors influence the Chinese Banking huge profit and the low rate of return on total assets, how to improve the commercial bank profitability, this article is try to discuss those questions through the theoretical analysis and empirical analysis.Profitability is the fundamental of the commercial bank to survive and develop, as other enterprises, Commercial banks should work under the principles of full autonomy and sole responsibility for their own risks.Strong profitability has important significance on Sustainable development, so the analysis and evaluation of the profitability is the important aspect of performance evaluation in commercial banks. This paper selects13listed commercial banks to analyze and evaluate, because these banks is more standardized in the governance structure, management mode, information disclosure than other non-listed banks, these modern banks account for the most of the market share of China’s banking industry, representing the future direction of development and play a positive role on the evaluation of the bank’s profitability.Individuals of this study are the13commercial banks listed in the domestic A-share market, including four state-owned banks and nine joint-stock commercial banks. The selected variables, including13indicators, such as the capital adequacy ratio, deposit and loan rates from2000to2010, are the means to study the profitability of the commercial bank on the basis of risk-adjusted, compliance, bearing the risk. Among those factors, the most important one is the real profitability. For commercial banks, part of the profit is the result of the co-ordination operation of various assets, so the real profitability is mainly based on the use of the assets. Although the real profitability can represent the total level of current profitability, it does not show it is sustainable. In the long run, the commercial bank’s profit of persistence and growth must be considered. At the same time, different factors play a different role on the enhancement of profitability. So the improved factors that contribute most in the gain of profit will elevate the profitability. Because of the commercial bank is characterized by the high debt and high leverage, return on total assets can reflect its appropriate rate of profitability. So I chose the capital gains rate and per capital income as dependent variables, using panel data analysis methods study profitability of the13listed banks by comparing the present situation of profitability that have been divided into two class.This paper can be divided into following sections in the structure.The first chapter is the introduction, which leads to the research problems, then introduce the background of the paper, including the advantages current obtained and the existence of inadequate, and briefly introduced the research ideas and the structure of the article, the methods and the significance of this study discussed, at the same time, I explained the innovation and inadequacies of this paper.The second chapter is the literature review; introduce the past research literature on this problem, conclude and summarize the representative research of the past decade from the bank size, market concentration by the means of multivariate analysis, draw my ideas through the study of theory from domestic and overseas scholars。The third chapter is the theory part. First introduced the connotation of the commercial banks’ profitability, and then described the operating principle of the commercial banks from both internal factors and external factors that affecting the profitability of commercial banks, those factors are credit risk, liquidity risk, capital adequacy rate, bank’s operational efficiency, non-interest income rate, asset size, the CPI, GDP growth rate and other indicators of commercial bank profitability.The fourth chapter is descriptive statistical analysis. This chapter introduced the principle of indicators selection, the source of the data, the comparison of the data that divided into two parts (the state-owned banks and joint-stock banks), the key indicators including the index of the total return on assets, the per capita income, the scale of the total assets, the market share of deposit, then I compare these indicators to analyze the reasons for the differences.The fifth chapter, using empirical analysis, is the most core part of this paper. The former scholars study this problem using panel data model almost certainly believe that there is no difference between the state-owned commercial banks and joint-stock commercial banks. They undoubtedly use mixed effect model on data regression, and then compare the goodness-of-fit of the two models. Through the fusion of the two types data, I carry out F-test and Hausman test respectively, the data mixed is more in line with the fixed effects regression model, which guarantees the correctness of the model selection and the scientificity of the research methods. Then I considered the state-owned banks and joint-stock banks by regression analysis, and identified the differences by comparison of the correlation coefficient. After that, I studied the profitability of commercial banks with individual fixed effects regression model.Empirical research can reach the following conclusions:among internal influencing factors, bank size and ROA(return on assets) are positively related; the proportion of administrative expenses to total income and ROA are negative correlated, the capital adequacy ratio is positively related to the proportion of loans to total assets, the proportion of loans to total assets and ROA are positively correlated, the proportion of cash and central bank deposits to total assets and ROA are positively correlated. However, other variables, such as the proportion of deposits and loans, deposit market share, net interest income to total operating income of the proportion, those variables of the state-owned banks and joint-stock banks have the opposite effect on ROA effect. I try to explain the causes about those differences. In addition, the external macro economic variables CPI positively associated with GDP growth and commercial bank ROA.The sixth chapter is policy Suggestions. In order to boost profitability, we should do something from following aspects after theoretical analysis and empirical research:reduce bad loans, tight control of the loan risk, and raise the capital adequacy degrees, strengthen management, improve the management efficiency and liquidity, open up the middle of business, expand profit margins, ensure the healthy development of the external economic.The final part of this paper put forward the insufficiency and the outlook for the future.In summary, the main contribution of this paper can be state in the following aspects:First, selected the indicators of the annual data of China’s four state-owned commercial banks and nine national joint-stock commercial banks, then compared and analyzed those banks’s profit ability. The results show that:the state-owned commercial banks, though large scale, deposit market share, still have a higher non-performing asset ratio because of its special state identity, policy constraints and restrictive, the enormous historical burden. While the joint-stock banks have strong market awareness, reasonable branch layout and innovation ability because of its flexible mechanisms, lighter historical burden.Therefore, the profitability of the joint-stock commercial banks is roughly stronger than the state-owned banks. However, with the deepening reforms of the state-owned commercial banks and operational efficiency, the state-owned commercial banks are gradually changing the backward situation of profitability. Second, this article abandoned the outdated concept of the past, referred to the latest thinking of economists, putted forward the measures how to improve China’s commercial banks and preparations what we should do through considering the objective reality and the direction of the future development. Again, this paper choose individual fixed effects regression model to regress the sample data, it can play a reference role later in this area of research. In view of my theoretical knowledge I limited, and the lack of practical experience, the view mentioned in the text, suggest to be further tested in practice.