Journal
JOURNAL OF BANKING & FINANCE
Volume 33, Issue 11, Pages 2080-2092Publisher
ELSEVIER SCIENCE BV
DOI: 10.1016/j.jbankfin.2009.05.005
Keywords
China; Bank profitability; Bank reform
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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. (C) 2009 Elsevier B.V. All rights reserved.
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