The Research On The Cost Efficiency And Profit Efficiency Of Chinese Commercial Banks

Efficiency is a concentrated embodiment of commercial banks’ competition. The estimating research of commercial banks’ efficiencies has realistic significance: providing a theoretical basis for commercial banks to enhance and improve cost efficiency and profit efficiency; providing reference for commercial banks to continue to deepen reform and make innovation; providing necessary evidence for China bank supervision authority to set the different financial regulations; providing supporting data for investors to make investment decisions.This paper discussed the general theories of efficiencies in economics, the theories of banking efficiencies, the classifications of banking efficiencies, and the research methods of banking efficiencies. In perspective of the research content, research methods and research conclusions, this paper collated and summarized the domestic and foreign commercial banks’ efficiencies systematically, especially the cost efficiency and profit efficiency. This paper has given the corresponding evaluation, and strived to enrich the existing understanding.This paper employed the Trans-log Function method using the Stochastic Frontier Analysis(SFA) approach and measured the cost efficiency and profit efficiency of Chinese 14 commercial banks from 2004 to 2013. This paper has made the following conclusions: In general, the increasing trend of average cost efficiency and profit efficiency for Chinese commercial banks is particularly evident on an annual basis; The cost efficiency and profit efficiency of the state-owned holding commercial banks declined, however the cost efficiency and profit efficiency of small and medium sized joint-stock commercial banks increased; The cost efficiency and profit efficiency level of the four state-owned holding commercial banks are generally higher than the small and medium joint-stock commercial banks; Bank of China has the highest scores in cost efficiency and profit efficiency among all the state-owned holding commercial banks. Bank of Communications has the highest scores in cost efficiency and profit efficiency among all the small and medium joint-stock commercial banks. This paper studied the mutual influence of cost efficiency and profit efficiency using the Pearson coefficient and found that there was a high degree of correlation between cost efficiency and profit efficiency. China bank supervision authority and the commercial banks should consider the relevant relationships of cost efficiency and profit efficiency and thus took appropriate measures.In this paper, regression models using Eviews are employed in studying the affecting factors of cost efficiency and profit efficiency factors. This paper found that the Total Assets(TA), Loans to Deposits(LTD), Business and Administrative Expenses Ratio(BAER), Return on Equity(ROE), and Non-interest Income Ratio(NIR) have positive impacts on cost efficiency and profit efficiency. However, the Non-performing Loans Ratio(NLR) has negative impact.Finally, in order to improve cost efficiency and profit efficiency, the state-owned holding commercial banks and the small and medium jointstock commercial banks are suggested to take the measures such as raising commercial banks’ capital adequacy ratio; adjusting the ratio of loans to deposits; enhancing the abilities of cost control; compressing the nonperforming loans; strengthening the commercial banking business innovations and enhancing the non-interest income proportion.