An Empirical Study On The Soundness And Operating Efficiency Of Commercial Banks Based On The BHI Index

Developments during the global financial crisis have highlighted the importanceof differentiating across financial systems and institutions.Assessments of financialstability have increasingly considered the characteristics of individual banks within afinancial system, as well as those with significant international reach, to identifyvulnerabilities and inform policy decisions. The soundness of commercial is more andmore remarkable, because the soundness of commercial banks plays a vital role in acountry’s financial system, it not only support the real economy of the country, butalso decided to a coutry how to make reasonable allocation of credit resources.On September12,2010, Basel Committee on Banking Supervision published theBasel Ⅲ accord asking for commercial banks raising their core capital adequacy ratiofrom4%to6%, for the purpose of lowing commercial banks liquidityrisk,strengthening banks’ soundness (may also called stability) and raising banks’ability of risk management and risk defense. It’s well known that combiningcommercial banks soundness with their operating efficiency properly is verymeanningful for every country’s financial system.Therefore, exploring therelationship between the soundness and the operating efficiency of Chinesecommercial banks to ensure the soundness and operating efficiency in harmony is avery meaningful research topic along with Chinese banking reform precess.This paper proposes a simple measure of bank soundness according to the newestreserch of IMF, the Bank Health Index (BHI), to facilitate preliminary analyses ofindividual financial institutions relative to their peers.The evidence suggests that theBHI is useful for a fist-pass identification of bank soundness conditions. First, weevaluate five aspects of the capital,asset quality,profitability,liquidity and leverage’ssoundness,concluded the single scoring Z value,and calculate the overall soundnessscore(BHI value), to assess the soundness of the individual financial institutions.Also, we select the Chinese listed banks as the study sample as the studysample,using the latest panel data, by analyzing the five aspects of FinacialSoundness Indicators (FSI), from the view of capital adequacy, asset qualityearnings structure,liquidity ratio,leverage ratio to analyse the soundness indicator’simpact on operating efficiency and add the asset size as control variables to analysethe soundness indicators’ affect of listed commercial banks’ operating efficiencyindicator by regression analysis. To explore the relationship between the soundness and operating efficiency of Chinese commercial banks,trying to make up for the lackof study on this problem in China and put forward related policy suggestions.