Study On Profitability Of Trust Company Of China

2015 wrote the magnificent history of financial year of China. We have experienced unprecedented volatility of the capital markets, while also witnessed the unexpected wealth beyond the traditional iterative innovation. Financial sector produced a qualitative transformation in the surge of the surface in the past, and the financial institutions in competition are accelerating their own transformation strategy, which also provided more forward-looking long-term vision to the company to think about the future direction of development and transformation of the road. Trust industry in China has experienced five growing periods and stable start-up period. As the situation changes in the macro-economic fundamentals, the pace of change is accelerating in financial market, and trust industry also will be undergoing dramatic changes, which will lead them to survive in an upcoming winter. New format is quietly sprouting, with budding land -- size of the trust assets of 1.5 trillion, the power of financial innovation, the foundation for many years of precipitation, the increasingly close cooperation between the trusts and other financial sub-sectors, the broad cooperation space, a unique advantage of fiduciary risk isolation, and other advantages like equity reconstruction.From the macro point of view, compared with ones in foreign countries, there is still a wide gap between trust industries. In other countries, the nature of the trust is the agent of the financial system, rather than an industry or institution; and within the framework of the financial sub-sector business, trust is interpreted as an independent industry in China. Nominally China's "Trust Industry" includes 68 trust companies. Other business institutions -- "Securities Investment Fund Law" stipulates that business carrying out by fund management companies (essentially the trust business) has not appeared on behalf of the trust. In addition, the wealth management business of commercial banks, securities companies and insurance asset management asset management business in the same substantive legal relationship of trust, which not corresponding constraints as trust in China's current legal framework. On the one hand, this shows that our trust services market is not a single market; on the other hand, it shows that our trust industry does not have its core business. Thus, to evaluate the profitability of our trust cannot be put into the same analysis of the foreign ones, which need a further research. However, due to the late start and late data publishing of Trust, there is still a lack of data and problems of different dimensions. Therefore, it is difficult to obtain valid data for analysis. In previous years, even made a valid public data, due to the uncertainty and the little number of trust companies, it is difficult for trust industry to evaluate the profitability of the industry, and there is no necessary.However, after the growing and development period today, our trust has entered a new stage of history. Trust Industry in China is not a model but a profession, and the managed size of the industry is expanding year by year. For this reason we are delighted but at the same time faced with a reality cannot be ignored that due to the over-reliance on infrastructure construction and real estate industry, trust is experiencing its own challenges with the downward trend in the real estate and the whole economic situation. In this round of winter, the trust company with higher profitability would be better to survive. The profitability and the distribution structure of the trust profitability will help us to understand future development of Trust. In this market environment,68 trust companies included in the paper for the study were evaluated on profitability. As to the structure of this article, the first part is to combing the related literature on profitability which leads a literature review. Then this paper offered defines and elaborating on the concepts, and analyzed the measurements on profitability, as well as the factors that will influence trust companies' profitability. This part in Chapters I and II was highlighted.In this paper, the third chapter focuses on the process of establishing evaluation system used in this paper. This chapter is one of the key sections of this article, for recommending a stable scientific comprehensive evaluation system is essential. Developing an evaluation system consists of three steps in this paper. First, we established the principle of selecting indicators, namely the systematic principle, the principle of effectiveness, operational principle and the principle of comparability, which has laid a theoretical foundation by determining the evaluation index system principles. Before the construction of the evaluation index system, the paper evaluated the existing common system of profitability first, and concluded the weakness of them like ignoring the long-term analysis. Combined with industry characteristics and development status, this paper will combine financial indicators and non-financial indicators, as well as growth indicators, which taken into account measures to try to improve the existing evaluation system. Besides, to reflect the characteristics of the industry of trust, rate of return through the years were also considered. Constructed with 11 variables in total in five dimensions, the index of profitability of Trust Evaluation System started. Five dimensions are: efficiency, competitiveness, innovation, ability of getting returns and ability to grow. Among them, the efficiency capabilities include total return on assets, EBIT margin, per capita profit, and annualized return on trust. Competitiveness includes net interest margin, cost to income ratio, market share. Innovation capacity includes non-interest income and investment income. Return ability's indicator is ROE, while growth indicator is profit growth.Then, in the fourth chapter of this paper, we did empirical analysis. Before empirical research, this paper reviewed the evaluation methods and described its pros and cons, then determine the method in the paper -- factor analysis. In the process of extracting common factors, the principal component analysis was taken. In determining the evaluation method described herein, this article forthwith profitability evaluates empirical research. Information is all from the disclosure of 68 trust companies published on the website and "China Trust Industry Almanac" and "Statistical Yearbook of China's financial industry". In this process, the chapter is divided into three parts of empirical design, empirical processes and empirical results. In the empirical design stage, in turn are variables describing, model building, and data processing. Data processing procedure includes handling and processing of the data with missing values outliers, as well as the most critical process standardization. In the empirical process, the paper did a comprehensive evaluation of 63 in 2009-2014 on average profitability, and of 68 trust companies by 2012-2014 years separately. In the average profitability of 63 trust companies reviews, in order to achieve a smooth and comparable data, the trust companies which established in recent three years are excluded. In each evidence session, it consists of the data testing, common factor extraction, rotation and extraction of factors, calculating of factor scores and comprehensive evaluation. Test plays a role of to check if variables in the original evaluation system fit the correlation assumptions, which is the base of factor analysis. The main test methods are KMO test and Bartlett test, which is also taken in this paper. With the test by each piece of evidence, we are in line with the conditions of factor analysis. In the stage of extraction of common factor, depending on the variance contribution rate and the characteristic roots, common factors were determined, and in the rotation and extraction phase specific common factors is extracted which represent different evaluation variables. Finally, factor score and total score were calculated based on the factor score matrix. At the end of the fourth chapter, we find that, the overall profitability of trust companies is on the rise year by year, as China's economy in recent years has been rapid growth. More importantly, the trust industry's main business areas such as infrastructure and real estate industry in 2012-2014 years got a rapid development. However, it went down gradually from 2014 with the economic downturn, benefiting from ability to spread part of the risk out through flexible asset allocation. At the same time, both calculated by the average profitability and by the year alone, even each trust company appear in their ranking on certain volatility, but a phenomenon among the Trust's top five had not changed--most of the top five trust companies are located in eastern China. Since the trust companies located in the east usually have better development, higher economic openness, therefore, the overall performance of trust companies located in the eastern part is superior to the ones located in the central and western region. Based on the comparison between the average profitability and 2012-2014 profitability of individual companies, we could conclude that the evaluation index system of profitability proposed and used in this paper has stability and rationality, and trust industry in China is still in the primary market structure competition.Then, in the fifth chapter of this paper, based on empirical results of Chapter IV, relevant recommendations of strategic direction and business direction in the future were provided. According to extracted common factors in Chapter IV, we can see our Trust profitability is mainly influenced by profitability, competitiveness, innovation and efficiency capabilities. Therefore, this paper proposes four aspects corresponding countermeasures. In terms of profitability, trust companies should strengthen cooperation with the other financial institutions. The second point is to strengthen the core competitiveness of the trust. As there is no core business existed in the trust industry and the characteristics of each trust are not distinctive, homogeneous market competition sharped significantly. Therefore, they should build their core competitiveness, and enhance the overall strength of the shareholders through the effective use of their resources and backgrounds. Also, actively innovative research and innovative products should be added to the innovation dimension. Finally, in order to accelerating trust business efficiency optimization, optimization of risk control efficiency, business development and institution-building should be promoted in parallel.