A Study On Influence Of Bank Credit Risk And Liquidity On Profitability

Banks are the enterprises of operating currency, its existence facilitates themobilization of social capital. through savings, loans, foreign exchange, payment,settlement and other services in the social economy. Banks play a role in creditintermediation, they are the world’s major financial institutions. In the year2008,twofinancing agencies in the United States-Fannie Mae and Freddie Mac were taken overby the government due to abusing of credit and a large number of subprime loansbecause borrowers can not repay the amount, and thus the subprime mortgage crisissweeping the globe.The recent financial crisis let us think about the causes, because ofhigh-risk loans issued by the big financial institutions,and this caused the crisis. InChina, the banking sector is the absolute core of the financial system, the vast majorityof loans are provided by the banking sector, so in the post-crisis era of China, thebanks’ credit risk have great significant undoubtedly.This paper talks about a segmentation problem of the credit risk, namely a study oninfluence of bank credit risk and liquidity on profitability.the observing object of thestudy is the joint-stock commercial banks.The target is to investigate the relationshipbetween its financial situation and the bank’s credit risk,analyse the relationshipbetween view feature in the bank ’s asset size and ownership and ownership structureand executive compensation and asset cash flows and the bank’s performance.Thispaper refers to Myrna R. Berríos (2013)’s model, profitability variables in regressionmodel include net interest margin, ROE, ROA;bank characteristic variables includeasset size, equity structure, corporate nature of the high tube remuneration; liquidityvariables include loan to deposit, debt-equity; loan risk variables for loan losses to totalloans; cash flow variable is the asset ’s cash flow. Empirical data from the GTAdatabase, including year2008to year2012total5years panel data,80observations.The empirical results show,if we select roe as the dependent variable, the resultis the best, there are four independent variables have significant correlation with thedependent variable, they are debt-to-equity was significantly positively correlated withroe, indicating a higher debt level may improve the profitability of banks; loan todeposit have significant negative correlation with roe, which is expected by foreign literature, probably due to a larger loan amount can not be recovered;high-risk loanshave significant positive correlation with roe, which is not the same as we expectedbefore, but for China ’s banking sector, this result is possible because the Chineseassets for credit risk is controlled very well, and a higher risk of lending bring higherincomes, thus leading to a high-risk loans have positively correlated with banks’profitability; natural logarithm of total assets is significantly negatively correlated withroe.The remaining variables associated with profitability are not significant, and this isa regret or a defect of this study. further research is needed.