Study On Impact Of Foreign Banks’ Entry On The Operating Efficiency Of China’s Banks

To fulfill the WTO commitments, China has cancelled the customers and geographicalrestrictions of foreign banks’ operating RMB business and also cancelled the operatingnon-prudential restrictions in China at the end of2006. Many foreign banks have beenexpanding their market shares rapidly through participating in domestic banks, setting upbranches and entering China’s rural financial market. At the same time, there are someforeign banks lessening Chinese banks’ shares. The influence of the entry of foreign bankshas shown new features and trends, especially on China’s whole financial system. In suchconditions, it has important theoretical and practical significance for us to study the impactof foreign banks’ entry on the operating efficiency of China’s banks by combining theoryand empirical methods.Based on the existing literatures, this thesis firstly expounds related theories offoreign banks’ entering the host countries and the overview of foreign banks’ entering ourcountry, as well as the meaning and measurement methods of banks’ operating efficiencywith qualitative methods, which lays the theoretical foundation for the following analysis.Secondly, from the perspective of quantitative analysis this thesis selects the financial dataduring the period of2007to2011as research samples, uses financial indicator method andtwo-stage associated DEA method to measure the operating efficiency of China’s banksaccurately and joins the brand share as new variable to measure the entry level of foreignbanks and thus studies the impact of foreign banks’ entry on the operating efficiency ofChina’s banks through empirical analysis with the improved panel data model. Regressionanalysis results show that the entry of foreign banks significantly improves the operatingefficiency of China’s banks and has more outstanding effects on small and medium-sizedcommercial banks. The research findings also show that the entry and development offoreign banks has some impacts on domestic banks’ traditional business and seizes part ofmarket shares and customer resources, but also promotes domestic banks to innovateproducts and business and makes the non-interest income improved greatly. The last, thisthesis puts forward some policy recommendations based on the foregoing empirical research conclusions: perfecting banking system; increasing banking internal and externalopenness; improving banking supervision system; comprehensively developing bankingbusiness system; focusing on the construction of brand culture and personnel training, etc.