The Influence Of The Concentration Degree Of China 's Commercial Banks On Its Earnings And Risks

Back to 2002, the non-performing loan ratio of Chinese banks is on the verge of "red line", many foreign investment banks including Goldman Sachs think those banks are technically bankrupt. In 2014, about nine Chinese commercial banks had list on the wealth magazine of the world’s top 500. In the golden development of ten years, the comprehensive strength of the Chinese banking industry has achieved collective leap. The asset size, net capital, number of outlets of the Chinese commercial banks has doubled, and the profitability, management ability, technical indicators and risk-defense ability has greatly improved. But with the rapid development, the loan concentration become high which is likely to cause the financial system risk for the explosion of the bank risks which are caused by enhancement of the desire to chase the profit, the intense of the financial product competition, the loans which are lack of consideration of economic policy and environmental change, the down pressure of the non-performing loan index made by regulation sectors, and the low coverage of the bank internal rating mechanism. Therefore, it has great significance to correctly understanding the effect on the profit and risk of loans by the loan concentration in our commercial banks which is useful to adjust the loan structure, including enhancing the quality of loans, reducing the risk assets balance, strengthen the control,prevention and disposal ability of the risk of loan concentration.This paper firstly detailed the factors affecting Chinese loan concentration in the the macroscopic and microscopic levels, and further detailed the mechanism that loan concentration impact on the profit and risk of the bank. Secondly, pick the top ten loan customer exposure ratios to measure the loan concentration of the customer, using the modified Herfindahl index(HHI) to measure the industrial concentration and the region concentration of the loans, and combined with the publicly available data of the annual report of sixteen listed banks in China, the banking Supervision and Management Committee, the Chinese financial stability report and the Chinese regional economic operation report between 2007 and 2013, we analysis the current situation and the indicators of the three dimensions of the loan concentration (customer concentration,industry concentration, and region concentration).Thirdly, use the capital rate of return,net interest income rate as the proxy for earnings in the empirical analysis; use the capital adequacy ratio, non-performing loan ratio,the Z index as the proxy for risk, then constructed the panel data regression model, and divided the sample banks into three types, and search the effect of the loan concentration separately.The main conclusions of this paper are the loan concentration in different type of commercial bank can cause structural difference in the effects on the income and risk. And in the three dimensions, customer loan concentration has significant effect on the index of earning and risk. For large commercial banks, the loan concentration slow down their profitability, increase the risk; for the joint-stock commercial banks, the loan concentration has benefit to their profitability, and increase the risk; for the city commercial banks, the loan concentration has benefit to their profitability, and increase the risk. On the basis of empirical analysis, combined with the needs of financial deepening and development, the paper has proposed targeted policy recommendations, including promoting the construction of the internal rating system, perfect the construction supervision index system, strengthen the construction of credit guarantee system, and step down the construction management system.