Study On The Factors Of Profit-making Ability Of Commercial Banks In China

With China's accession to the WTO in 2001 and China's capital market further opening up to foreign banks, China's commercial banks in the domestic market is faced with a huge international competition. Compared to some foreign banks with abundant funds, advanced technology and multiple financial services, China's commercial banks, especially state-owned commercial banks is charactered with weak profitability, poor asset quality, low levels of management ,lack of innovation ability. The profitability of commercial banks is the most important factor of survival and development, so how to improve the profitability of commercial banks, strengthen the core competitiveness of China's commercial banks become the most important topics of urgent concern for China's commercial banks and academics. Under this background, we try to do the research about the profitability of China's commercial banks.First of all, based of theoretical studies on the profitability of commercial banks, we introduce the connotation and operation principles of commercial banks, and then we analyse systematically the influencing factors of profitability in terms of the banks itself and the external macro-environment. Then, we build the evaluation index system of profitability. On this basis, using 14 major commercial banks (four state-owned commercial banks and 10 joint-stock banks) of the panel data (1999 to 2008), we build an empirical model using econometric methods to test the correlativity between profitability and the influencing factors, and explain the empirical results deeply. Finally, we give some policy suggestion to enhance the profitability of commercial banks in China.According to the empirical analysis results, we find the following conclusions: (1) NL TA and ROA is negative relationship. With NL TA increased, the level of credit risk of banks will increase and the profitability of banks will fall. (2) EQ TA and ROA is a positive correlation. Commercial banks with adequate capital can resist the negative impact, and then can hold lower bankruptcy costs. In an imperfect capital markets, Commercial banks with lower cost of bankruptcy get funds by lower interest costs, so then can get higher profitability. (3) LIQUIDITY and ROA is a negative relationship. (4) OVERHEAD and ROA is a negative relationship.(5) LTA and ROA is a negative relationship. Because of the existence of diseconomies of scale in the operation of China's commercial banks, with the expansion of bank assets, the average cost increases, so the profitability decline. (6) DEPO TA and ROA is a positive relationship. Creadit Spread is a major source of profits of commercial banks in China. Deposits is the main source of credit capital, and with absorbing more of the deposits, there are more capital for lending and higher interest income. (7) LGDP and ROA is a positive relationship. With the economic growth, commercial banks profitability increases.