An Empirical Study On The Impact Of Loan Industry Concentration On The Earnings And Risks Of China 's Commercial Banks

Since the establishment of China’s commercial banks, the phenomenon exists that most of the loans in the commercial banks of China have been kept only in several sectors. For a long time, China’s economy has been in a rapid development momentum. To some extent, credit resources centralized configuration contributed to China’s economic development. Due to the strict government regulation and the low degree of competition among financial institutions in the past, the risk from commercial banks’ lending sector concentration did not get enough attention. Today, China is in a critical period of economic restructuring and upgrading, the macroeconomic environment around commercial banks has taken dramatic changes. With the advance of market-oriented reform of interest rates, commercial banks which long relied on bank deposit and lending spreads to survive will face enormous challenges. Along with the lower threshold of banking, private banks, mixed mode and Internet financial appear, which will lead to more intense competition in the future of banking. And this will also lead to changes on the effect of lending sector concentration to the return and risk of China’s commercial banks. In this context, the research on the effect of lending sector concentration to the return and risk of China’s commercial banks will provides a beneficial basis for the commercial banks to allocate the credit resources rationally and efficiently, and to strengthen the supervision of lending sector concentration.Based on the literature review, this paper studies the effect of lending sector concentration to the return and risk of China’s commercial banks from both theoretical and empirical aspects. The main focus of this paper is as follows:In the theoretical analysis, this paper firstly analyzes the causes of the phenomenon of the formation of loan sector concentration. Secondly, this paper introduces the industry cycle theory and life-cycle theory to analyze the effect of lending sector concentration to the return and risk of China’s commercial banks in different environments, after talking about the effect totally. The results show when the loans of commercial banks focus on the cyclical sector, the growing sector or the recession sector, commercial banks the will face greater risk.In the description of the analysis, this paper analyzes from two aspects, one is the sector distribution of loans and another is lending sector concentration. The paper describes the data both in terms and in years, using both the lateral and longitudinal comparative analysis to find out the difference. The study shows the Bank of Nanjing has a high level of lending sector concentration, while China Minsheng Bank has a high degree of dispersion in lending sector concentration. In terms of the mainly direction of loans, most of the loans are concentrated in the manufacturing sector. In addition, the real estate sector also occupies a large share of commercial bank loans. In terms of industry concentration changes in the loan, the lending sector concentration has a certain upward trend since 2009.In the empirical analysis, this paper listed the data between 2007 and 2013 of nine commercial banks, using the data both from stock market and the financial statements, analyzes the effect of lending sector concentration to the return and risk of China’s commercial banks. At the same time, the paper chooses both the HHI index and the CR3 index as the index evaluating lending sector concentration. The research shows that lending sector concentration doesn’t have a significant impact on the return of the commercial banks, but it can increase the risk of the commercial banks.Finally, this paper puts forward some corresponding policy recommendations from following three aspects:optimizing the credit structure of commercial banks, improving the supervision system of commercial banks and perfecting external security mechanism.