Research On The Profitability Of Commercial Banks In China Based On Decision Tree Model

The 2008 global financial crisis triggered by.Lehman bankruptcy led to a market recession, which not only indicated the decisive role banks played, but conveyed a message that investors in the market were inclined to invest in a bank with stable profitability. The common savers wanted a guaranteed long-term return while the investors wished a more secured place for their money. The purpose of this study is to find a method which could objectively measure profitability of commercial Banks in China. After a comprehensive analysis of all reasons that may lead to profitability variation, factors were selected to structure a decision tree evaluation model which could measure the profitability of commercial banks, and hence assist to make investment statements. Meanwhile the operation strategy of commercial banks should be based on their positions in the whole banking industry respectively, since the promotion of profitability could only be achieved by a suitable analysis of the advantages and disadvantages of other counterparts. Besides, this study optimized profitability evaluation model as well.From perspectives of traditional economics and data mining, this paper started from the theories of profitability evaluation and illustrated the reason why profitability evaluation should be studied from the aspects of capability, stability and persistency. Based on the research achievements in and out of China, a profitability evaluation index system was established including 8 first-tier indices and 16 second-tier indices. By applying systematic clustering method, indices were sorted to 5 categories and loaded into Weka3.6.0 as evaluation indices and data flow. A 2010 forecasting model was also established by applying the model of J48 (or C4.5), under which a calculation was made with a sample of data from 13 commercial banks in 2009. A cross validation was ultimately made to the profitability forecasting model of commercial banks in China, which showed a high fitting degree. Verify the prediction model, in which the usability of the model can predict the profitability of other commercial Banks or the same bank profitability level in different year. After analyzing the results of the rules extracted from the decision tree model, the paper presents some suggestions on how to improve the profitability of the commercial banks in China.