A Study Of The Effects Of Loan Concentration On Chinese Bank’s Risk And Return

Loan concentration is a relatively common economic phenomenon, loans concentrated mainly refers to credit resources of commercial banks which led to uneven concentration of loans to specific industries, customers and regions. Such loans could result in loan concentration risk. In order to cope with the impact of the international financial crisis in 2008, the Chinese government use four trillions credit funds and loose monetary policy to stimulate economic growth, which makes loan concentration risks continuing to accumulate in the Chinese commercial banking system. Bank lending in the industry generally focused on enterprises may be the result of market mechanisms that which guides the credit resources flow from the low profit margins of the social sector to higher margin departments, but the situation has led to excessive concentration of loans to invest in credit structural imbalances, threat the banks’ healthy development. Meanwhile, the impact on the banks’ loan concentration may therefore differ from other countries because of our special loan concentration into, and concentrated impact on bank loans of different nature may also vary. Although academic research on China’s credit risk and bank earnings are more, but the literature on the effects of the risks and benefits of this research focused on aspects of the loan is not a lot, but also focus on the impact the current literature on the banks of the risks and benefits of the loan and It did not reach a unified view.To study the effect of commercial bank loans concentration on the bank’s risks and benefits,the paper is divided into five parts to elaborate. Part 1 focuses on the background and significance are involved in research related to the research literature, content, method and possible innovations are introduced. Part 2 describes the content and concentration of loans of several major concentration calculation methods and explains the causes of the loan set. Next, Part 3describes the theoretical impact on the bank loan concentration risk and return. Section 4 explains how to select data and variables are introduced to build the model and panel data regression analysis. Panel data analysis in this paper to our A-share listed banks from 2007 to 2014 data as the basis for Herfindahl index measurement lending industry concentration degree ratio method to measure exposure concentration of customers in non-performing loan rate represents bank risk,return on total assets on behalf of the bank receipts, the main use of individual fixed effects model the effect of loan concentration risks and benefits of our state-owned commercial banks and shareholding system commercial banks empirical analysis respectively.The empirical results show that the loan concentration of industry and customer have different effects on the bank’s risk and return, while the effect on the state-owned commercial banks and shareholding commercial banks are also different. Among them, at the risk of impact onthe state-owned commercial banks in terms of lending industry concentration will significantly improve the non-performing loan ratio state-owned commercial banks, while customer focus will reduce its non-performing loan ratio; As to risk impact on the shareholding commercial bank aspects, lending concentration of industry and customer have no significant effect on the non-performing loan ratio. On the other hand, as tothe earnings impact of state-owned commercial banks, the effect of lending concentration of industry and customer on ROA are inversely related,and the impact of the loan industry concentration is the greater; In the aspect of earnings of the shareholding commercial banks impact, loan industrial concentration improves the return on total assets of shareholding commercial banks, when the customer concentration did not significantly affect the concentration of income. Finally, Section 5 summarizes the previous empirical analysis,draws conclusions, and then puts forward the corresponding policy recommendations on the basis of conclusion, points out the shortcomings of the article.Combined with the existing research literature, the paper strives to be innovative, possible innovations are followed: First, the current literature on the industry concentration at present ignores the method details of bank industrial loans to be listed in the annual report, resulting in data error, the paper conducted a data correction; Second, little academic research focus on the aspects of earnings effect of concentration of bank loans, we used the data of 14 listed banks collected by hands, devided into state-owned banks and shareholding banks, carried out this empirical analysis, enriched the study of the bank loans concentration impacts; Third, the current literature takes the size of banks into consideration when choosing control variables, while GDP has a huge impact on the effect of the risks and benefits of banks on this article. The added control variables may make the setting model be more reasonable.