What explains the low profitability of Chinese Banks?
AbstractThis 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 â€“Chinaâ€™s largest banks- have been the main drag for systemâ€™s profitability. We find the same negative influence for Chinaâ€™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.
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Bibliographic InfoPaper provided by BBVA Bank, Economic Research Department in its series Working Papers with number 0909.
Length: 44 pages
Date of creation: Apr 2009
Date of revision:
China; Bank profitability; Bank reform;
Other versions of this item:
- García-Herrero, Alicia & Gavilá, Sergio & Santabárbara, Daniel, 2009. "What explains the low profitability of Chinese banks?," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2080-2092, November.
- Alicia García-Herrero & Sergio Gavilá & Daniel Santabárbara, 2009. "What explains the low profitability of Chinese banks?," Banco de Espaï¿½a Working Papers 0910, Banco de Espa�a.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-BAN-2010-04-11 (Banking)
- NEP-TRA-2010-04-11 (Transition Economics)
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