Effect Of Overconfidence On Rural Commercial Bank Loans Risk And Profitability

Rural commercial bank is local financial institution which combined with farmers,rural businesses,corporate and other economic organizations' shareholding.Rural commercial banks were formerly known as the rural credit cooperatives.In 2001,as a pilot reform of rural credit cooperatives,Jiangsu Province has established three rural joint-stock commercial banks,which were Zhangjiagang Rural Commercial Bank,Jiangyin Rural Commercial Bank and Changshu Rural Commercial Bank.Rural commercial banks is a product of rural financial reform.As a new model of rural credit cooperatives reform of China's economically developed areas,the level of its operational efficiency not only relates to its own development,but also has a great impact on the effectiveness of China's economic reforms.According to behavioral finance theory,this paper introduces the overconfidence theory to discuss the existence of the phenomenon of overconfidence in rural commercial banks in Jiangsu Province,and how the overconfidence influences on rural commercial bank loan risk and profitability of rural commercial bank credit inquiry process.Based on this,we will summarize the experience and enlightenment.At last,the paper will put forward effective suggestion in order to reduce the risk of rural commercial bank loans and improve profitability.The main structure of the paper is as follows:The first chapter introduced the research background,purpose and meaning;reviewed study abroad rural commercial bank risk and profitability of the relevant literature,and summarized the research status and academic perspectives.The current study mainly used traditional financial theory and took into account the risk of borrowers not the bank's management level.Finally,introduced the research contents,the innovation and deficiency.The second chapter introduced the overconfidence effect in detail from the angle of theory.In-depth analysis on the basis of excessive effect theory,introduces the application of overconfidence impact on financial markets and the financial aspects of the company.In the final,this chapter attempted to explore the possibility of its use in the commercial banking sector.The third chapter analyzed the operating conditions of rural commercial banks in Jiangsu Province.We collected and analyzed rural commercial banks monthly data Jiangsu Province between 2011 and 2014,conducting a descriptive analysis of their risk levels,profitability and overconfidence.The fourth chapter constructed empirical models.The fifth chapter provided policy recommendations to strengthen the risk and profitability management of rural commercial banks.Finally,the paper summarizes the research conclusion and proposed the future research.This paper draws conclusions are as follows:Jiangsu Rural Commercial Banks have a high level of overall risk but lower level of profitability.The risk level of rural commercial banks has been affected by overconfidence effect.With the increase in the degree of overconfidence,the risk of banks will also increase.The overconfidence effect is reflected in loan growth and NIM two aspects and there is a lag effect in 7-9 months.The overconfidence effect on rural commercial bank profitability is still not sure because the current net interest margin impact on earnings levels play a decisive role and this does not represent the impact of overconfidence effect.The lag period of overconfidence variable is not significant and the impact has offset each other.So overconfidence impact on rural commercial bank profitability is still uncertain.