Cost Efficiency Of Chinese Banks: A Parametric Analysis

Bank of efficiency, in effect, reflects the bank competitiveness. Improving bank efficiency means higher output in the condition of the same input, or lower input in the condition of the same output. In a word, the improving bank efficiency means the strengthening of the bank competitiveness. Thus, the analysis of Chinese bank efficiency not only prevents bank risks but also lead the banking sector to be more sustainable development. Besides, it is also the core of China's deepening financial reform. Such an analysis is of great importance for raising the whole financial resource distribution, and finally affects the performance of the national economy. As the cost efficiency is the basis of bank efficiency, so the study of cost efficiency of Chinese commercial banks is of vital significance whether in theory or in reality.First of all, this paper uses SFA(Stochastic Frontier Analysis) to estimate the cost efficiency of 252 groups of sample data of 14 Chinese commercial banks from 1999 to 2008——the original sample 140 groups and the improved sample 112from 2001 to 2008. The result shows the cost efficiency of the shareholding banks is higher than the state-owned banks, but the gap is narrowing whether in original sample or improved sample. The non—performing loan ratio leaves a significant influence on the whole banking sector, more significant in the state—owned banks than in the shareholding ones. It is gratifying that the negative impact of the non—performing loan ratio is decreasing.Secondly, according to the above results, this thesis alone studies the influence of the asset quality(the non—performing loan ratio) on cost efficiency, which proves the above results again. Then, using the panel econometric model, this paper analyses the impact of 8 aspects like banking stability,banking scale,ownership structure and so forth on cost efficiency, which shows 6 aspects, including banking stability,banking scale,ownership structure, have positive effects on it, and only two aspects(operating expense ratio and market concentration) have negative influence. Besides, the factors such as information technology, banking supervision that is difficult to quantify are also studied in the following paper.At last, according to this empirical research, this paper put forward various proposals and policies such as controlling and improving the asset quality,optimizing the ownership structure,effective supervision,accelerating innovations and the like. The paper ends with its shortcomings and prospects.