Operational Efficiency Evaluation Of Chinese City And Rural Commercial Banks

City commercial banks(CCBs)and rural commercial banks(RCBs)are important financial institutions that serve China's economic deployment.Thus,the evaluation,comparison,and improvement of the operational efficiency of these institutions are necessary.Given that CCBs and RCBs were originally restructured as local financial institutions from urban credit cooperatives and rural credit cooperatives respectively,they share numerous similarities in terms of position,business developments and problems,so these banks can be incorporated in the same research sample.Here,my research sample comprised the top 50 CCBs and RCBs in 2016 ranked by total assets.I then applied the DEA method and disclosure data of 2016 to evaluate the operational efficiency of the sampled banks.Generally,previous studies have following limitations:first,state-owned banks(SOBs),joint-stock commercial banks(JSCBs),CCBs and RCBs were incorporated in the same research sample in many studies,but the evaluation results would be not representative given that CCBs and RCBs lag far behind the former two types of banks.Although studies that solely focused on CCBs or RCBs have emerged in recent years,few have compared the efficiency of CCBs and RCBs.Second,some studies ignored risk factors when selecting indicators or were rough in understanding and handling relative indicators.Third,many studies adopted classic DEA models to calculate efficiency but failed to capture the characteristics of the banks and indicators themselves.To address those limitations,I established three efficiency indicator evaluation systems and two DEA models based on differences in model design,indicator handling,and understanding their nature.To select the best indicator system and model,I then compared the three efficiency indicator evaluation systems from the perspectives of setting the direction vector,dealing with undesirable outputs,and understanding the nature of indicators that indicate risk management.I found that the following measures must be taken to improve the accuracy of evaluation results:First,if the directional distance function is adopted in the DEA model,the direction vector should be set as(1,-1).Second,if the indicator system incorporates desirable outputs and undesirable outputs that are bound together,the assumption of weak free disposability should be imposed on undesirable outputs.Third,indicators that reflect risk management,such as capital adequacy ratio(CAR)and provision coverage ratio(PCR),should be introduced into the system as inputs.The selected DEA model and its results showed that first,although the difference between the operational efficiencies of the two types of banks had diminished,CCBs continue to encounter the problem of polarization,whereas the efficiency level of RCBs has become increasingly concentrated.Second,half of the CCBs and RCBs with high efficiency are located in the coastal economic region,which is the most developed region in China.Nevertheless,banks within the same region exhibit drastically different efficiencies.Finally,by referring to my evaluation results,I provide suggestions for improving the efficiency of the two types of banks.