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Bank profitability and the bank lending channel: Evidence from China

  • Gunji, Hiroshi
  • Yuan, Yuan

This paper uses bank-level data to investigate whether the impact of monetary policy on bank lending depends on the characteristics of Chinese banks during the period 1985-2007. We find that the impact of monetary policy on lending is weaker for larger banks and banks with lower levels of liquidity, and that banks' responses to monetary policy do not necessarily vary according to their capital. Further, to identify the bank lending channel more clearly, we test whether the impact of monetary policy varies according to profitability. The results show that profitable banks tend to be less sensitive to monetary policy, because when tight monetary policy leads to a fall in deposits, less profitable banks face a higher cost of capital.

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Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 21 (2010)
Issue (Month): 2 (April)
Pages: 129-141

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Handle: RePEc:eee:asieco:v:21:y:2010:i:2:p:129-141
Contact details of provider: Web page: http://www.elsevier.com/locate/asieco

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  1. Gambacorta, Leonardo, 2005. "Inside the bank lending channel," European Economic Review, Elsevier, vol. 49(7), pages 1737-1759, October.
  2. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
  3. Alicia García-Herrero & Sergio Gavilá & Daniel Santabárbara, 2005. "China's banking reform: An assessment of its evolution and possible impact," Banco de Espa�a Occasional Papers 0502, Banco de Espa�a.
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  8. Kishan, Ruby P & Opiela, Timothy P, 2000. "Bank Size, Bank Capital, and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 121-41, February.
  9. M. -H. Liu & D. Margaritis & A. Tourani-Rad, 2009. "Monetary policy and interest rate rigidity in China," Applied Financial Economics, Taylor & Francis Journals, vol. 19(8), pages 647-657.
  10. Marvin Goodfriend & Eswar Prasad, 2006. "A Framework for Independent Monetary Policy in China," IMF Working Papers 06/111, International Monetary Fund.
  11. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  12. Qin, Duo & Quising, Pilipinas & He, Xinhua & Liu, Shiguo, 2005. "Modeling monetary transmission and policy in China," Journal of Policy Modeling, Elsevier, vol. 27(2), pages 157-175, March.
  13. Yu Hsing & Wen-Jen Hsieh, 2004. "Impacts of Monetary, Fiscal and Exchange Rate Policies on Output in China: A Var Approach," Economic Change and Restructuring, Springer, vol. 37(2), pages 125-139, 06.
  14. Altunbas, Yener & Fazylov, Otabek & Molyneux, Philip, 2002. "Evidence on the bank lending channel in Europe," Journal of Banking & Finance, Elsevier, vol. 26(11), pages 2093-2110, November.
  15. Lin, Xiaochi & Zhang, Yi, 2009. "Bank ownership reform and bank performance in China," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 20-29, January.
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