Study On The Efficiency Of Chinese Commercial Banks Based On DEA And HLM

The efficiency of commercial banks reflects the banks’ business performanceand competitiveness and the level of a country’s financial sector development,playing an important role of a country’s economic development. Therefore, manyscholars have intensively studied the efficiency of commercial banks, to which bankmanagers also attached great importance. China’s commercial banks have achievedsome achievement, but compared with foreign excellent banks, some problems stillexist. These problems lead to the inefficiency of China’s commercial banks.Especially after joining WTO, foreign commercial banks have entered China andhave increased the competition of banking sector. Therefore, it is meaningful toincrease the efficiency of commercial banks in China.After combining domestic and international related literature and elaboratingsome theoretical knowledge about the efficiency of commercial banks, this paperselected the14representative commercial banks’ data in China from2001to2010,then employed the data envelopment analysis (DEA) to evaluate their technicalefficiency, pure technical efficiency, scale efficiency and analyze technicalefficiency and scale efficiency. The empirical results of the DEA model showed thatthe pure technical efficiency of the state-owned banks was higher than that of thejoint-stock commercial banks, while the technical efficiency and scale efficiency ofthe joint-stock commercial banks were higher than that of the state-ownedcommercial banks. The internal joint-stock banks performance were uneven, such asChina Minsheng Bank, Shanghai Pudong Development Bank performed better,while Guangdong Development Bank and Bank of Communications performedworse.After measuring the efficiency of commercial banks in China, the paperfurther measured the factors influencing the efficiency of commercial banks by ahierarchical linear model which was a novel approach in recent years. The paperused the three kinds of efficiencies as the dependent variables, and selected assetsratio, non-performing loan rate, loan to deposit ratio, the rate of asset costs,ownership structure, intermediary business revenue ratio and return on assets rate asindependent variables. Then the paper used the hierarchical linear model analyzedthe data. The results showed that the most significant factors were non-performingloan ratio and return on assets. Loan to deposit ratio and ownership structure had acertain influence on the efficiency of commercial banks and the other three factorswere not significant. Finally, according to the results of the model, this paperaccordingly put forward some strategies to enhance the efficiency of commercial banks in China, including the adjustment of ownership structure, the development ofintermediary business, etc.