The Empirical Study On The Efficiency Of Chinese Commercial Banks In2004-2010

Estimating the efficiency of Chinese commercial banks and exploring the way to improve the efficiency are significantly important for banks to face fierce market competition. It’s also helpful to test the result of shareholding reform, and to explore the next reform direction, thus to support our country’s macroeconomic steady growth.However, there are some inadequacies in the existing empirical studies on the efficiency evaluation of Chinese commercial banks:(1)Positioning of the nature and function of commercial banks is too general and unilateral. For example, only considering commercial banks as ordinary corporations will fail to reflect the particularity of commercial banks when selecting the indicators;(2)The concept and classification of efficiency are numerous, and different scholars have different understandings and definitions. Some researches generally use the term "efficiency", but not strictly define the connotation of it;(3)DEA method can only measure the relative efficiency of sample banks, and it’s useless to estimate the absolute value. But some researches directly use the estimation to the intertemporal comparisons, which is lack of rigor.Therefore, basing on the beneficial studies of existing researches, this paper defines Chinese commercial banks as the credit intermediaries to serve society and as the firms in pursuit of profit-maximizing. As credit intermediaries, in order to reflect the function of financial service, the inputs of banks are labor costs and total assets, and the outputs are deposits and loans excluded non-performing loans. As firms, in order to reflect banks’ profitability, the inputs are deposits and net loans, and the outputs are pre-tax profit. The sample includes14largest national commercial banks, and the period is from2004to2010. Then, DEA method is applied for a static analysis on the different efficiencies of service and profitability of Chinese commercial banking:scale efficiency and technical efficiency under different assumptions. And then, there is a dynamic analysis on the different efficiencies with the method of Malmquist productivity index based on DEA.The main conclusions obtained are as follows:(1)Among Chinese commercial banks, it’s common that some banks play better roles as credit intermediaries, but their ability to create profits may be low-ranking. At the same time, some bank’s efficiency of profitability is high-ranking but the efficiency of service is relatively low-ranking.(2)As for the function of banks’ financial service, there is a good situation, which reflects that Chinese commercial banks fulfill their roles as the credit intermediaries relatively well and steadily. However, profitability, which is the key factor to determine the overall efficiency, is relatively inefficient, and there is a large space for improvement. Meanwhile, it also reflects the importance of non-interest income to improve the efficiency of commercial banks in China.(3)This paper also fully affirms the positive significance of the shareholding reform of State-Owned Commercial Banks (SOCBs). SOCBs’ Changes in productivity, technical efficiency and technology are better than the Joint-Stock Commercial Banks (JSCBs). SOCBs are ranked backward in pure technical efficiency in the earlier years, but slightly ahead of the JSCBs in the latter years. Moreover, the SOCBs have been maintained better scale efficiency than the JSCBs, but slightly backward in the dynamic progress. At last, the SOCBs are in non-increasing range of returns to scale while the JSCBs, especially those banks which have relative smaller size, are in the increasing range of returns to scale.The main innovations are as follows:(1)This paper comprehensively defines the role of commercial banks in China from both macro and micro perspective. Moreover, it improves the structure of indicators more detailed and comprehensive by taking advantage of the unique input and output indicators of existing researches.(2)During the data selection procedure, it takes the interference of inconsistent range into consideration and excludes non-performing loans. In addition, the period using in most existing research is earlier than2009, while in this paper the period updates to2010.The directions of further researches based on this article are as below: (1)A further expansion of the research sample. It’s better to cover a certain amount of city commercial banks and rural commercial banks, and to enhance the reliability of the conclusions of the overall efficiency of Chinese commercial banks.(2)Considering the price factor, the efficiency estimation should be extended to cover cost efficiency and allocation efficiency so that obtaining a more comprehensive efficiency structure.(3)It’s better to include the factors of the risk, advanced technology and non-interest incomes so that the analysis of Chinese banking efficiency will be more detailed and comprehensive.