| With the deceleration of China’s economic growth and the deepening of financial reform, the level of competition in banking has also been changed. The level of competition will affect the bank’s risk behavior, and then affect the bank’s credit risk. Since the third quarter of 2012, both the ratio and the balance of non-performing loans rise continuously. Though they are in controllable level, the credit risk in banking can’t be ignored. In this background, it’s of great significance to research the impact of banking competition on credit risk.Based on the background discussed above, the paper discusses the domestic and foreign researches about relations between banking competition and credit risk first, and then put forward the paper’s studying point. Secondly, the paper analyzes the impact mechanism from three perspectives including "Franchise Value", "Risk Transfer Effect" and "Profit Margin Effect". Then, the paper studies the influence of banking competition on credit risk with panel data of twenty-four banks from 2007 to 2014 empirically. There are two parts in the empirical study. With the purpose of analyzing the trend of competition and credit risk, the first part discusses indexes measuring competition and credit risk, including Lerner Index, ratio of non-performing loans(NPL), and ratio of average loan loss preparation to total loans(PL). The second part set up econometric models containing Lerner Index square. In these models, NPL and PL are used to measure credit risk respectively. The empirical results show that banking competition and credit risk is U-shaped, and more than 70% of the sample data locate on the right side, being equal to the view that the improvement of competition helps to reduce credit risks in current condition. Finally, according to the theoretical analysis and empirical results, and combined with the current situation of the banking industry in China, the paper puts forward some corresponding suggestions on banks and regulators. |
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