City Commercial Banks Across The Regional Development Impact Of Loan Losses

The geographic expansion of the city commercial bank is a very significant project for our research on the third floor of the banking system in our country. Since2006, one city commercial bank opened a branch outside its province, the development of city commercial bank’s geographic expansion has been a long time. Some city commercial banks got some achievements, but some others failed.During this process, the biggest challenge that this city commercial banks face is controlling the risks when they take their business into new area. In this article, we choose loan loss risk which is very important among those risks they must face, to study how it will be affected in theory and in empirical test. At the same time, we test weather this process would decrease the fluctuation of banks profits.After accounting for the research background, our article summarizes the literatures on how geographic expansion of banks affects their risks. And through the introduction of the process and the status quo of our city commercial banks’ geographic expansion, we use the portfolio theory to analysis that city commercial banks can make their loans more diversified in region when they implement the inter-regional development, also this can make banks’ loan business have less concentrated risk. Combining with the view that the inter-provincial economic activity were differ, we get that city commercial banks can withstand the region’s economic impact on their lending business through geographic expansion. At the same time, in theory the geographic expansion makes the revenue source of banks business more dispersed, this will make it able to stabilize the bank earnings volatility. Through the empirical test, we find we found that geographic expansion can indeed decrease the city commercial bank loans’ geographical concentration, and also decline the industry and customer concentration of loans, all of which makes a significant impact on banks’ risk of loan losses. This also makes it able to stabilize the volatility of bank earnings. However, at this stage city commercial banks open branches in some provinces and cities which their economic activity differences are not obvious, despite the theoretical analysis of the regional economic differences can work, in fact the impact of using geographic expansion to withstand the region’s economic impact on their lending business is not obvious.This result can provides some suggestions for city commercial banks in the next inter-regional development process, that is these banks which already have mature cross-regional development experience can choose and set up branches in the areas which the regional economic structure and economic activity are different from the areas which it already set up branches in further cross-regional development process. The other city commercial banks that just beginning to geographic expansion can still choose the economically developed regions as a first step to go out. When regulatory authorities cope with the geographic expansion of these uneven development city commercial banks, they should be distinction on this issue.