What Explains the Low Profitability of Chinese Banks? (Garcia-Herrero A., Gavila S., Santabarbara D.)

Bank Profitability Bank Systems

Abstract This paper analyzes empirically what explains the low profitability of Chinese banks for the period 1997-2004. We find that better capitalized banks tend to be more profitable. The same is true for banks with a relatively larger share of deposits and for more X-efficient banks. In addition, a less concentrated banking system increases bank profitability, which basically reflects that the four state-owned commercial banks - China’s largest banks - have been the main drag for system’s profitability. We find the same negative influence for China’s development banks (so called Policy Banks), which are fully state-owned. Instead, more market oriented banks, such as joint-stock commercial banks, tend to be more profitable, which again points to the influence of government intervention in explaining bank performance in China. These findings should not come as a surprise for a banking system which has long been functioning as a mechanism for transferring huge savings to meet public policy goals.
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Libref/ Garcia-Herrero A., Gavila S., Santabarbara D. (2009) “What Explains the Low Profitability of Chinese Banks?”, Banco de Espana Working Paper № 0910, pp. 1-34
© Программирование — Александр Красильников, 2008
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