Research On Ownership Structure And Bank Performance Of City Commercial Bank

In 2012, Leaf urban credit cooperative in Xiangshan County has been reestablished as Ningbo Donghai Bank, which marked the end of urban credit cooperative restructuring in China. Today, city commercial bank has developed more than ten years. At the beginning, they were burdened with a mass of bad loan. In case that city commercial bank could not return citizen’s savings and triggered local financial shock, central government required local governments to buy shares of city commercial banks. Thanks to the history problem, most city commercial banks’ largest shareholder are local governments. Since 2002, some city commercial banks have realized local governments’ special status would harm banks’ development. Therefore, they started to look for new investors at aboard and home, which could help banks establish market operation system and improve competitiveness. Issuing new shares would not only bring in new money, but also change banks’ ownership structure. But what kind of ownership structure could improve bank’s performance most? What’s the role local government plays in bank’s operation? This paper will study on such question. City commercial banks’ main market target is to lend money to medium-sized and small enterprises. But medium-sized and small enterprises have short life circle and high management cost, so some city commercial banks prefer to lend money to big companies. Besides, city commercial banks’ credit funds is limited and they usually operate in local cities. Whey they lend a large amount of money to big local companies, loan concentration problem will be more severe. Combining the common concern of city commercial banks’ loan concentration problem, this paper introduces consumer loan concentration and ownership structure’s interaction items to study loan concentration and bank performance’s relationship in different ownership structures.Based on corporate governance theory and commercial bank’s particularity, this paper analyses ownership structure and bank performance’s relationship theoretically. Then summarize city commercial bank’s features of their development and make a comparison of state-owned bank, stock-holding bank and city commercial bank on current situation. After that, this paper has collected the annual reports of sixty-six city commercial bank in 26 provinces(included municipalities and autonomous regions) from 2005-2013 and conduct panel data regression on Eviews 6.0. Firstly study on the relationship between ownership structure and bank performance. Then introduce interact dummy variables of equity structure and loan concentration to study loan concentration and bank performance’s relationship in different ownership structures.The empirical evidence shows that: the ratio of the largest shareholder and Herfindahl Index are significantly negatively correlated with bank performance; shareholder balance item is positively correlated with bank performance; when the largest shareholder is local government, the bank performance will be decreased; loan concentration is significantly negatively correlated with bank performance; The interact item of ownership structure and loan concentration indicates ownership concentration and balance do not influence the relationship of loan concentration and bank performance, but equity nature weakens the loan concentration’s bad influence on bank performance significantly. In summary, combining the empirical results and city commercial banks’ operation status, the paper makes some policy suggestions: Firstly, lower the largest shareholder’s share percentage and create shareholder balance mechanism. Secondly, reduce local governments’ intervention, introduce strategic investors. Thirdly, cooperate with other city commercial banks, reduce city commercial bank’s loan concentration risk, and take advantage of local information advantage and resource advantage to do business. Lastly, carry on accurate market orientation according to city commercial banks’ own circumstances, develop their small banks’ advantages.