On The Efficiency Of Chinese And European Commercial Banks: A Comparative Study Based On DEA

Since China became a member of WTO in 2001, the Chinese financial industry has been gradually opening up to the outside world. On one hand, it creates a golden opportunity for the Chinese commercial banks to perform on a larger stage, on the other hand, more and more foreign commercial banks enter the Chinese market which threatens the local commercial bank industry. In addition, the outbreak of the U.S subprime mortgage crisis and European sovereign debt crisis also adds new uncertainty to the current economy situation. As a result, it is necessary for Chinese commercial banks to improve efficiency to confront the challenges. This thesis uses Data Envelopment Analysis (DEA) to compare the efficiency of 14 Chinese banks and 16 European commercial banks from 2004 to 2011. Apart from this, in order to compare the multi-period efficiency from a dynamic way, the article uses Malmquist index model to analyze the performance of bank efficiency. The result shows that the overall efficiency of Chinese commercial banks is lower than that of European banks, however, Chinese commercial banks keeps a high growth rate in efficiency rather than European banks. Furthermore, the technical progress is the primary cause of the total factor productivity progress not only for Chinese commercial banks but also for European commercial banks. The article also analyzes the influencing factors of commercial bank efficiency from three levels: macroscopic level, industry level and microscopic level and gives the explanation of how they influence the bank efficiency. At last, the paper gives the suggestions for Chinese commercial banks on how to improve efficiency:(1) optimize the structure of property rights, (2) speed up financial innovation, (3) improve asset quality, (4) moderate expansion of bank scale.