The financial and prudential performance of Chinese banks and Fintech lenders in the era of digitalization

Paraskevi Katsiampa (), Paul B. McGuinness (), Jean-Philippe Serbera and Kun Zhao ()
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Paraskevi Katsiampa: The University of Sheffield
Paul B. McGuinness: The University of Sheffield
Kun Zhao: Chongqing Rural Commercial Bank

Review of Quantitative Finance and Accounting, 2022, vol. 58, issue 4, No 5, 1503 pages

Abstract: Abstract The years 2013 to 2019 marked an explosion in Fintech in China. We analyze the financial and prudential performance of 40 exchange-traded banks and 25 listed Fintech lenders in China during this watershed period. Among other things, traditional banks experienced rising operating costs, declining profit margins and softening loan quality. Consistent with a process of adaptation, traditional bank performance stabilized in the latter part of the study period (2018-19) after an initial period of decline. Study findings also highlight rising business and regulatory costs for Fintech providers over the course of the study frame. A marked deterioration in online lenders’ Special Mention and Non-Performing Loan (SML & NPL) positions arose during the period. Within the traditional bank group, smaller entities with fewer growth options and greater foreign ownership fared worst in prudential terms. Traditional banks’ financial and prudential performance also declines with time since IPO. Relative to joint stock commercial, city and rural banks, state-owned lenders registered more resilient performance, especially in relation to asset quality. In a final area, we construct a categorical Fintech proficiency variable for China's established banks. Our preliminary evidence suggests such proficiencies help stabilize SML and NPL rates and support financial returns. Overall, we offer major contribution to the banking literature by analyzing the financial and prudential performance of both incumbent and emerging lenders in one of the world’s most dynamic Fintech settings.

Keywords: Financial technology (Fintech); Prudential success; Special Mention Loans (SMLs); Non-Performing Loans (NPLs); China; Financial returns; Private versus state ownership; Foreign equity ownership; Time since IPO (search for similar items in EconPapers)
JEL-codes: C23 G21 L25 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11156-021-01033-9

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