Empirical Study On Overall Efficiency And Divisional Efficiency Of Chinese Commercial Banks

As the financial intermediaries providing important financial intermediationservices for economic development, the development of banks have been attractedincreasing attention from economists. On the one hand, the global financial crisistriggered by U.S. subprime mortgage crisis makes the banking business risk increasedsignificantly. On the other hand, with the deepening of China’s market-orientedreform of the financial system, foreign banks gradually enter Chinese financialmarkets, China’s banks is confronting growing competition. Measuring and improvingthe efficiency of banks have been the focus of economists and bank managers.This paper firstly introduces the traditional data envelopment analysis andanalyzes the drawbacks of the "black box" model: the production of bank is treated as“a black box”, therefore we cannot identify which production division is inefficient.Thus，this paper apply the US_NSBM model by combing the network slacks-basedmeasure with super efficiency and undesirable outputs to data of Chinese commercialbanks from2008to2012. The characteristics of overall and divisional efficiency areexplored and the determinants of them are analyzed based on statistical analysis andFGLS panel regression model.We find that most Chinese banks are overall inefficient. However, most of themare efficient in deposit production stage, while inefficient in loan production stage. Asfor determinants of overall efficiency and stage efficiency, the five basichypotheses-‘risk taking’ hypothesis,‘assets liquidity’ hypothesis,‘interest margin’hypothesis,‘shareholder behind’ hypothesis,‘scale effect’ hypothesis-work asexpected. Risk taking, assets liquidity, shareholders’support and scale effect havesignificantly positive effect on overall efficiency and deposit production efficiency.Though interest margin hasn’t a significant effect on deposit production, it effectsoverall production and loan production positively and significant ly. And risk takingcannot effect loan production significantly. In loan production stage, Big Four banksare not more efficient than others, and domestic banks are more efficient than foreignbanks. To improve overall and stage efficiency of Chinese commercial banks, on theone hand, commercial banks should disperse risk and strengthen risk-taking ability ofbanks by actively exploring new industries, increasing support for small andmedium-sized enterprises, developing personal bank loans. They should also build the awareness of liquidity risk management through the establishment of early warningsystems and response plans, paying close attention to changes in the macroeconomicand financial situation and establishing a sound measurement system of liquidityindicators. On the other hand, the government should continue to deepenmarketization reform of the financial sector, and promote the process of interest rateliberalization.