| If the economic system can be regarded as a currency of blood flow, then the bank, which runs the currency-oriented operation, is the hub of blood conversion and filtering devices. From the angle of the factor resource allocating, economic structure optimizing, macro-economic controlling and the people's livelihood maintaining, commercial bank, as the financial main body, plays an important role in the operation of national economy. Since 1978, the direction of socialism market-economy system has been set, while, as a result, each section of national economic system gradually has been activated and increasing problems and costs has been pooled in the bank system, which requires the speed-up of China's banking reform. Therefore, Ensuring financial security and improving its operating efficiency are becoming the most important task of all.In 2001, the accession to the WTO accelerates the process of opening up in the financial field. Facing the challenges and impacts from foreign banks, how to effectively improve the market competitiveness of China's commercial banking sector is becoming a fully-fledged reality. Compared to the size and development speed of banks, operating efficiency is only some superficial aspects. So the realities of China's economic situation require us to shift the focus of the research and theory to explain the efficiency-center problem.Then, what should we do to understand and measure the efficiency of banks? How could we evaluate the reform and restructure of China's banks in the past few decades? What kind of results the banking system have been achieved about the operating efficiency through these activities? What influence the effectiveness of China's banking sector through the years of the reform process? What also needs changing as the focus of the future? This paper will seek to theoretical and empirical discussions and answers concerning these questions, which seems to have been the motive and purpose of this paper is to make a number of theoretical and practical significance.â… . The Review of the Efficiency of BanksBased on the features of scarcity resources, telling from economic vision, the efficiency can be understood simply as the optimization level of a factor of resource allocation. Since 1960s, "efficiency" has again become the core and focus of attention of Western economics. Sorting out the traditional theories about the efficiency, this paper fully absorbs and uses the existed research findings, pursues the theoretical basis and logical framework of economic efficiency analysis, and deepens the understanding of the bank's operating efficiency, indicates that, from the micro perspective of resources allocation, the efficiency of enterprise could be construed as input and output ratio -- that is, if enterprises realizes the maximum output under the conditions of certain input, or if enterprises achieve successfully the minimum input under the conditions of certain output, efficiency may be there, instead, there were inefficient. Furthermore, in order to avoid unnecessary confusion and disputes through the use of the precise wording of "efficiency", we use two texts of the paper to introduce production efficiency /cost-effective of the banks, and definition of the concept of profit efficiency, including the applicability of different assumptions and theoretical connotation on the efficiency.â…¡. The Research Approach to the Banking EfficiencyOne of the purposes of this paper lays in the measurement and comparison the operating efficiency (cost / profit) among China's commercial banks, and studies the theoretical connotation of affecting factors and their functions by means of stochastic frontier approach (SFA) on the cost / profit efficiency of the banks. Later, as a preparatory stage on the basis of empirical research, the contents of this chapter can be summarized as follows:â…°. Introducing the use of empirical measure of efficiency and the application of SFA on the banking efficiency estimation;â…±. Sorting out the existed main ideas about the variables of the banking input and output, on the basis of which to review the core ideas (Intermediary and Production Approach) of the related criteria for the classification;â…². Summarizing the definitions and characteristics of several commonly used types of functions about banking efficiency in the parameters research, and discussing the applicability and standard of the different function structure;â…³. Simply indicating the main deficiencies of parameters and non-parameters approach and coming up with the solutions by virtue of the comparative study on estimation techniques to find out the best SFA.â…¢. The Empirical Research on the Profit Efficiency of China's Commercial BanksConsidering the features of bank's input and output, we select SFA among the parameters tools in order to successfully peel off the potential influence caused by random errors as the calculating. Owing to the related technique limitations that regression estimation of factor-affecting efficiency probably encounters, we continue to use the research project raised by Battese and Coelli (1992,1995) for the model setting. Meanwhile, a few quantum indexes that image the situation of the bank risks are embedded into the original model so as to revert the real efficiency under the condition of risk differences. The sample we select are the related data China's 14 major commercial banks from 1994 to 2004. The test results indicate that:â…°. The ownership reform of China's banking sectors played a certain affirmative role and the profit efficiency of the shareholding banks is superior to the state-owned banks in the sampling years;â…±. The policies, including injecting capitals, peeling off the dead assets, restructuring, reducing employment, made by government to save and activate the state-owned banks worked very well in the short term. Since 1998, the general increasing trend of profit efficiency of state-owned banks has weakened the efficiency advantage of the shareholding banks;â…².The general efficiency of China's banking is decreasing in the sampling years. Although the demand that the development of national economy requires more various financial services are getting higher, the commercial banks, who occupy lots of resources, haven't been able to own profits until now, because of stubborn management system, redundant regulations and government intervene;â…³. Risk factors affect the profit-making ability of China's banking sectors. The fact that introducing risk variable helps to enhance the bank efficiency shows that China's commercial banking sectors still have less incentive to optimize their profits even though there are abundant potential benefit in rapid-developing market. The traditional profit-making approaches always put the assets of China's commercial banks in the higher risks and decrease the credit quality simultaneously. Furthermore, the situation can be qualitatively changed by the restricted market competition and pressure of budget obviously.â…£. The Empirical Study on the Cost Efficiency of Chinese Commercial BanksWith the sample database of Chinese commercial banks from 1994 to 2004, we estimated the cost-efficiency of major 14 commercial banks with stochastic frontier approach, and analyzed the trends of efficiency in the sample periods. The results indicate that:â…°. The ownership reform of the banking sector were positive. The overall cost-efficiency of joint-stock commercial banks in the sample period, were higher than the average of state-owned banks, the variable of property had a significant impact on cost-efficiency evaluation;â…±. Since 1998, the government departments have achieved remarkable progresses in cost control from the reform of state-owned commercial banks, including capital injection, restructuring and staff reductions. After 1998/1999, the state-owned banks increased cost efficiency level over the joint-stock banks and maintained their efficiency advantages in sample periods;â…². In the sample period, the Chinese banks constantly improved the mechanism of cost control, there was an upward trend in the overall cost-efficiency, the reform of state-owned banks, commercial banks getting listed, the development of the overall economic environments and a sound financial system had all played important and active roles;â…³. The risk factors also have a significant impact on the cost control of banking sectors. The introduction of risk variables increased the level of cost efficiency of commercial banks, which means that the majority of cost changing of Chinese commercial banks can be attributed to the neglect of the risk from the high-risk business. While this trend began to change from 1999, but the changing direction is still not clear.â…¤. The Theory Research on the Situation of Chinese Banking EfficiencyFrom the respective of responsibility restraints of specialization, we analyzed the foundation of the implementation of contractual arrangements, discussed the different intrinsic features and external conditions of hierarchical structures from market. we also discussed the factors in the hierarchy that may lead to the strategies changes of competitive participants; According to the theory of evolutionary economics, we established a simple model to describe the competitive process in hierarchy systems, tried to explain how the participants change their strategies, and how the equilibrium outcome changes. We also give some significant conclusions and proposition in the end. On this basis, we analyzed the operation situation of China's commercial banks with the logical framework we proposed, tried to reveal that the nature of the efficiency problems come out from the hierarchical characteristics of management and organizational structure and, in many cases, the affection or even inappropriate interference of government, as a typical hierarchical organization, on the banks' normal business. The former causes can be attributed to the defects of the banks property rights and the inherent national credit guarantee system, the latter is more because of the lack of institutions and the government's great ability to intervene the market economy.â…¥. Recommendations to Improve the Efficiency of Chinese Banking SectorOn the basis of the previous researches, we put forward some specific proposals to improve the operational efficiency of China's commercial banking sector, concretely including the follows: Carrying on the commercial banks equity diversification reform, particularly for the state-owned commercial banks, reducing the proportion of state-owned shares, and expanding the scope of strategic investors to qualified private capitals; Deepening the reform of the shareholding system, establishing a modern commercial bank management system, improving the independence of the board of directors and board of supervisors, and bringing independent directors into full play, increasing the proportion of external supervisors, incarnating the accountability of directors and executives, improving the Board's decision-making mechanism, OIA system and information disclosure mechanism; Forming a market-oriented commercial banks incentive and restrictive mechanisms, promoting the construction of the management markets, constructing an effective evaluation system to reflect the banks'risk and profitability, establishing market-oriented incentive systems with short-term incentives and long-term incentives; Building a standard explicit deposit insurance system, promoting the smooth withdrawal of national credit from commercial banks, with the key points focused on the improvement of the financial market environment, the establishment and regulation of deposit insurance corporations, and the authority of them in the banks'quitting from the market, etc; Increasing the overall profitability of commercial banks in the integrative management backgrounds, formulating and improving the relevant financial laws and regulations, bring the capital market and the currency market into full play on the allocation of resources, and consolidating a financial regulatory system suited to the needs of integrated operating, improving the risk control mechanism and innovation system of commercial banks, boosting the business expansibility capability of commercial banks, restructuring the organizations and establishing a training and management system for future development.â…¦. ConclusionCarrying on the summary to the main points and the conclusions of the paper's theoretic and empirical sections and pointing out the main development directions for further research, from Chinese specific conditions and specific matters encountered in the study. |
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