What Explains the Low Profitability of Chinese Banks?
Banco de Espana Working Paper No. 0910
November 2009Journal of Banking & Finance 33(11):2080-2092
34 Pages Posted: 3 Jun 2009 Last revised: 3 Aug 2021
There are 2 versions of this paper
What Explains the Low Profitability of Chinese Banks?
What Explains the Low Profitability of Chinese Banks?
Date Written: June 2, 2009
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.
Keywords: China, bank profitability, bank reform
JEL Classification: G21, G28
Suggested Citation: Suggested Citation
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