Study On The Relationship Between Capital Structure And Profitability Of Commercial Banks In China

With the listing of Agricultural Bank of China, China's top five commercial banks have achieved the stock market after the transformation of the road, state-owned commercial banks and joint-stock commercial banks to become the core of China's banking industry, the banking system in China plays a pivotal role in the commercial banks enhance the profitability of their increased risk response capacity to respond to the challenges of international banks has important significance..The factors which influence profitability of commercial banks include both macro and micro factors, macro-factors such as economic growth is the macroeconomic situation, micro-factors is bank's internal capital structure. External macroeconomic factors are not controllable, this article focuses on the micro factors, which analyzes the capital structure on the profitability of commercial banks. Capital structure impacting the profitability of banks is conducted by two ways, on the one hand, capital structure, particularly equity financing and debt financing will determine the different costs and risks of bank financing, equity financing less risky, but its cost high; while debt financing, although the costs are lower, but the bank's heavy debt burden, how to strike a balance between the two, finding the optimal capital structure of banks is of great significance. On the other hand, indirect effects of bank capital structure, corporate governance structures, different management philosophy and management style is different, and thus indirectly affect the bank's profitability. As the special nature of banks, their own few assets, most of the deposits formed by debt, high asset-liability ratio ,therefore, to guard against credit risk, regulators made the request for capital adequacy ratio and core capital adequacy ratio.According to Basel II ,capital adequacy ratio of commercial banks can not be less than 8%, and core capital adequacy ratio can not be less than 4%. To guard against the risk of the banking system and ensure a more robust banking operations ,China Banking Regulatory Commission require a higher capital adequacy requirements: capital adequacy ratio of large commercial banks can not be less than 11.5%, core capital adequacy ratio can not be less than 10%, and capital adequacy ratio of general commercial banks can not be less than 10%, core capital adequacy ratio can not be less than 8%. In the development process of commercial banks ,because of the inner impulse to expansion of assets size , rapid credit expansion, and large asset consumption, credit expansion is often accompanied by a decline in capital adequacy ratio. In order to enhance the capital adequacy ratio, China's commercial banks began to diversify the capital supplement, in addition re-financing, profit share capital, the introduction of strategic investors, and there is also an important way to compensate is to increase the capital funds of subordinated bonds, hybrid bonds distribution, and this approach is increasingly widely adopted by commercial banks.In addition to asset-liability ratio, capital adequacy ratio and core capital adequacy ratio, the proportion of deposit to liabilities and the ratio of loan to deposit are indicators to measure bank capital structure, which suggest the ability of bank deposits, issuing loans. Currently the net interest margin of deposit and loan is still an important source of bank profitability cases, these two indicators affect the profitability of banks. In addition, through the middle business, such as credit card business, fund custody and sales agency business, non-interest income of the bank is also increased rapidly in recent years. Especially small and medium sized joint-stock banks have carried out the rapid development of intermediary business ,through their own advantage. intermediary business has become the next important new bank profit growth.Indicators of bank profitability are return on assets, return on net assets, etc., this paper uses net assets to measure the return, and uses debt ratio, capital adequacy ratio, asset size, loan to deposit ratio four indicators to measure the bank capital structure.Based on data from 2001-2009 , 3 state-owned commercial banks and 8 joint-stock commercial banks, this paper makes a panel data model researching on the relationship between capital structure and the profitability of banks, then puts forward relevant policy proposals, such as the implementation of Basel II, to strengthen the bank's core capital regulation and prevent excessive lending risks of banks; to issue subordinated bonds and hybrid subordinated bonds to recapitalize the banks, increase the bank's capital adequacy; increase the proportion of intermediary business revenue and so on.