What explains the low profitability of Chinese banks?

Alicia Garcia-Herrero, Daniel Santabárbara and Sergio Gavila
Authors registered in the RePEc Author Service: Alicia Garcia Herrero

No 909, Working Papers from BBVA Bank, Economic Research Department

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 banks 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 (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2009-04
New Economics Papers: this item is included in nep-ban and nep-tra
References: Add references at CitEc
Citations: View citations in EconPapers (136)

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Related works:
Journal Article: What explains the low profitability of Chinese banks? (2009)
Working Paper: What explains the low profitability of Chinese banks? (2009)
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