Commercial Banks On The Market Based On SFA Law Of Cost-Effectiveness

Finance is an important support for social and economic development.Economic development has laid the material foundation for social civilization and progress. The banking industry is the core of the financial system, and its steady development is related to financial stability and economic security of the country. As a commercial bank, its competitiveness is embodied in efficiency,while high efficiency also reflects the contribution to economic development.Therefore, the efficiency of commercial banks has important practical significance to the healthy development of China’s banking industry.This paper selects the data of 16 listed commercial banks from 2007 to 2013 as the original sample data, adopts an integrated method of theoretical and empirical analysis, qualitative and quantitative analysis and transverse and vertical analysis. Based on SFA, the paper uses translogarithmic cost function to obtain cost efficiency and makes an empirical analysis of factors that affect the cost efficiency. Specific ideas are as follows: the cost efficiency of 16 of China’s listed commercial banks is used as a reference for the study. First, sum up the relevant theories about cost efficiency, track the trend of domestic and international research and clarify the current status and problems of bank efficiency, which provides objective basis for empirical research and lay a solid theoretical foundation for further analysis of cost-effectiveness; secondly,summarize domestic and foreign research methods on the bank’s cost efficiency,compare different measurement methods, state the reason for the use of SFA to analyze cost efficiency of Chinese listed commercial banks, study variables indicators and factors and then make empirical analysis with objective sample data; Finally, according to the results from empirical analysis, propose policy recommendations for banks to improve cost efficiency, competitiveness and figure out deficiencies in research.There are some findings through the empirical research. First, the cost efficiency of China’s listed commercial banks varies hugely. The public thinkthat China’s four big state-owned banks have no strong momentum to develop and have lost half of the sky. Their cost efficiency fluctuates and shows the trend to decline. However, the local commercial banks, such as Bank of Beijing,Shanghai Pudong Development Bank and China CITIC Bank, though little known, demonstrate a curvilinear rise in cost efficiency, gradually reaching the top three. This illustrates that the market-oriented reform of China’s banks has made some achievements. City commercial banks, rising stars, are a good proof.To promote economic development continuously, China’s commercial banks must continue to deepen reform, keep up with international financial market,improve conditions to compete with international finance, accelerate innovation in the assets, liabilities and middle business, and constantly improve the level of intensive and meticulous management. China’s four big state-owned banks must invigorate themselves, thoroughly reform non-standard operating system and model, improve cost efficiency and strive to win in the fierce competition in the international financial markets. Second, the cost efficiency of 16 commercial banks don’t change greatly as expected after they were listed. Listing banks can enhance the reputation and attention, which can draw attention of vast number of potential investors and attract investors to buy shares of stock and result in the increase of stock. At the same time, innovative products and business will receive extensive attention and the enthusiasm of staff can be evoke as well as normalized operation of senior executive. Thus listing banks can drive comprehensive system innovation of China’s commercial banks and achieve sustainable development. But the cost efficiency of China’s commercial banks don’t increase as expected. Maybe it’s because that China’s commercial banking system is imperfect and thus can not adapt to the environment of financial market after listing. Third, the quality of bank assets and cost efficiency is negatively correlated, which suggests that the cost efficiency of banks will improve if non-performing loan ratio reduces. The stability of assets and the cost efficiency of bank is positively correlated. The bigger the bank’s core capital adequacy ratio is, the greater the cost efficiency is. The relationship between liquidity of assets and cost efficiency is complex because the loan-deposit ratio has two sides. Even though, loan-deposit ratio still has gret impact on the cost efficiency of commercial banks. As long as we choose the proper loan-depositratio, the cost efficiency can be improved. Finally, in order to integrate into the international financial market, and participate in competition the paper proposes some suggestions to effectively improve the cost efficiency of Chinese commercial banks.