Bank Performance in China

A Perspective from Bank Efficiency, Risk-taking and Market Competition

Jianchun Fang, Chi Keung Lau, Zhou Lu, Yong Tan, Hua Zhang

Research output: Contribution to journalArticle

Abstract

The current paper contributes to the empirical literature on bank profitability by testing the joint-impact of different types of risk, competition in different banking markets and different types of efficiency on bank profitability using a sample of Chinese commercial banks over the period 2003-2017. In particular, we fill in the gap of the empirical studies by examining the impact of efficiency on profitability when banks undertake different levels of risk-taking behaviour and face different degrees of competition. The results show that competition in the Chinese banking markets (deposit market, loan market and non-interest income market) is stronger over the period 2003-2005 and also 2014-2017. In addition, it is found that bank size, cost efficiency, profit efficiency and inflation are significantly related to bank profitability. Finally, we find that the positive impact of cost efficiency on profitability is stronger when banks undertake higher levels of risk and face more competition.
Original languageEnglish
Pages (from-to)290-309
Number of pages20
JournalPacific Basin Finance Journal
Volume56
Early online date18 Jun 2019
DOIs
Publication statusPublished - 1 Sep 2019

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Bank performance
China
Market competition
Bank efficiency
Risk taking
Bank profitability
Banking
Degree of competition
Testing
Non-interest income
Empirical study
Profitability
Deposits
Inflation
Profit efficiency
Loans
Risk-taking behavior
Bank size
Commercial banks

Cite this

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title = "Bank Performance in China: A Perspective from Bank Efficiency, Risk-taking and Market Competition",
abstract = "The current paper contributes to the empirical literature on bank profitability by testing the joint-impact of different types of risk, competition in different banking markets and different types of efficiency on bank profitability using a sample of Chinese commercial banks over the period 2003-2017. In particular, we fill in the gap of the empirical studies by examining the impact of efficiency on profitability when banks undertake different levels of risk-taking behaviour and face different degrees of competition. The results show that competition in the Chinese banking markets (deposit market, loan market and non-interest income market) is stronger over the period 2003-2005 and also 2014-2017. In addition, it is found that bank size, cost efficiency, profit efficiency and inflation are significantly related to bank profitability. Finally, we find that the positive impact of cost efficiency on profitability is stronger when banks undertake higher levels of risk and face more competition.",
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Bank Performance in China : A Perspective from Bank Efficiency, Risk-taking and Market Competition. / Fang, Jianchun ; Lau, Chi Keung; Lu, Zhou; Tan, Yong; Zhang, Hua .

In: Pacific Basin Finance Journal, Vol. 56, 01.09.2019, p. 290-309.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Bank Performance in China

T2 - A Perspective from Bank Efficiency, Risk-taking and Market Competition

AU - Fang, Jianchun

AU - Lau, Chi Keung

AU - Lu, Zhou

AU - Tan, Yong

AU - Zhang, Hua

PY - 2019/9/1

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AB - The current paper contributes to the empirical literature on bank profitability by testing the joint-impact of different types of risk, competition in different banking markets and different types of efficiency on bank profitability using a sample of Chinese commercial banks over the period 2003-2017. In particular, we fill in the gap of the empirical studies by examining the impact of efficiency on profitability when banks undertake different levels of risk-taking behaviour and face different degrees of competition. The results show that competition in the Chinese banking markets (deposit market, loan market and non-interest income market) is stronger over the period 2003-2005 and also 2014-2017. In addition, it is found that bank size, cost efficiency, profit efficiency and inflation are significantly related to bank profitability. Finally, we find that the positive impact of cost efficiency on profitability is stronger when banks undertake higher levels of risk and face more competition.

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