Determinants of the Performance of Banks in Hong Kong

Jim Wong, Tom Fong (), Eric Wong and Ka-fai Choi
Additional contact information
Jim Wong: Research Department, Hong Kong Monetary Authority
Eric Wong: Research Department, Hong Kong Monetary Authority
Ka-fai Choi: Research Department, Hong Kong Monetary Authority

No 706, Working Papers from Hong Kong Monetary Authority

Abstract: This paper develops a model to identify the major determinants of a bank's profit, and the general level of profitability of a banking market. It found that in Hong Kong's case, market structure, such as market concentration and market shares of banks, is not a major contributory factor. Cost efficiency of banks, which measures the ability of banks to optimise their input mix for producing outputs, is a major determinant of banks' profitability. Since larger banks are found to be in general more cost efficient than smaller banks in our previous study on banks' efficiency, larger banks can offer services at lower prices to compete with smaller banks, yet attaining a similar or even higher level of profits. Smaller banks may, therefore, be more vulnerable to intense competitions in the loan market than larger banks, particularly in cut-throat price wars.

Keywords: Profitability; price; Hong Kong banking; bank efficiency; market structure (search for similar items in EconPapers)
JEL-codes: G14 G21 G28 L11 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2007-04
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com and nep-eff
References: Add references at CitEc
Citations: View citations in EconPapers (6)

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http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP07_06_full.pdf (application/pdf)

Related works:
Chapter: Determinants of the Performance of Banks in Hong Kong (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hkg:wpaper:0706

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