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What explains the low profitability of Chinese banks?

Alicia García-Herrero (), Sergio Gavilá () and Daniel Santabárbara
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Alicia García-Herrero: Banco Bilbao Vizcaya Argentaria
Sergio Gavilá: Banco de España

Authors registered in the RePEc Author Service: Alicia Garcia Herrero

No 910, Working Papers from Banco de España

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 (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2009-06
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-dev and nep-tra
References: View references in EconPapers View complete reference list from CitEc
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