The impacts of competition and risk on profitability in Chinese banking: Evidence from Boone indicator and stability inefficiency

This paper tests the competition in different banking markets (deposit market, loan market, and non-interest income market) using a sample of Chinese commercial banks between 2003-2013 and further examines the impact of competition on bank profitability while controlling for different types of risk. The results show that non-interest income has a higher level of competition compared to the other two markets during early years of the examined period. The findings further report that in a higher competitive deposit market, Chinese commercial banks have lower levels of profitability. Finally, it is suggested the bank profitability is significantly affected by liquidity risk.