The Bilateral Analysis Of The Commercial Banks' Efficiency In China

Finance is the key factor of one country's economy. In the same way, the banks are also the most important part in the field of finance. So the efficiency of the banks' operation is quite crucial to the whole economy, and the research on the operating efficiency of banks is very meaningful and practical.Banks play a very special part in the society. As the public institutions, banks are taking the responsibilities to allocate the financial capital from the suppliers to the demands, in order to make the economy operate well. On the other hand, banks need to improve their operating performance to pursue profit and max their income as a company in the business world.The banking system in China is integrated by four state-owned banks, ten joint-stock commercial banks, foreign banks and etc. The four state-owned banks cover 70% of the market in China with lots of historical problems. And the joint-stock commercial banks have their flexible strategies and have growing fast though with small market shares.This paper investigates the efficiency of the commercial banks in China. By employing the bilateral model of DEA (data envelopment analysis), it dissects the contrast between state-owned banks and joint-stock commercial banks from two aspects: banks acting as financial mediator versus the ability to gain profit.The reason we divided the 14 banks into two different groups is based on their internal characters. The state-owned banks were founded as parts of government, they were supposed to work as public institutions which focus on making some construction loans to the state-owned corporations for example. But many of these corporations didn't operate well because of the old system of planning-economic. That is the very reason that the four state-owned banks have much more bad debt and non-performing assets. Meanwhile, the 10 joint-stock commercial banks were found lately than the 4 state-owned banks, the most important is the 10 joint-stock commercial banks having been focusing on pursuing profit which resulted in their constant performance improvement.In the late 20 century, China government took serial proceeds to restructure the four state-owned banks, especially the Industrial and Commercial Bank of China, Bank Of China and China Construction Bank. During the procession, the three banks' stepped into a higher financial position and their operation system has been improved a lot by learning from their strategic investors.The most different between the two banking data group is their business scale. But the four state-owned banks didn't work better than the ten joint-stock commercial banks with the economic of scale in history. This paper is to detect the effect of the restructure proceed on the three state-owned banks.Empirical results show that these two groups performed almost equally judging from the intermediation aspect, but had a great disparity in terms of profitability performance. Nevertheless, through the shareholding system reform, the profitability of state-owned banks improved significantly.