The Impact Factors And Sustainability Analysis Of Commercial Banks’ Profitability In China

The huge profit of commercial banks has once again aroused widespread concern of the society in2011. The ROA of most bank hits a historical high, which is in contrast to the economic recession and general decline in corporate profits. The bank’s profitability is an important indicator to measure their competitiveness. Although commercial banks’ profit has maintained rapid growth, however, because of the deterioration of the external environment and the bank’s own operations defects. the sustainability of bank profitability is facing serious challenges. Recently, government has introduced various policies to limit bank profits, such as prohibiting arbitrary charges, lower loan-to-deposit benchmark spread. How should the bank face these challenges and keep the sustainability of their profitability has become an important issue..To research the impact factors of bank’s profitability is the basis of researching the sustainability of profitability. Only knowing what factors have an important impact on bank profitability can we address the problem and make appropriate strategies in order to maintain the sustainability of profitability. However, the selection of impact factors needs to be based on various theories. Therefore, this paper draws on scholars research ideas and research methods, according to financial development and economic growth theory, industrial organization theory, the banking crisis theory, financial innovation theory and economies of scale theory and so on, which are all relevant with profitability of banks, we divide the impact factors into macro-economic ones, market structure factors and the banks themselves factors. The bank’s themselves factors can be divided into risk factors, innovation factors, efficiency factors and scale factors. According to the above impact factors, we select eight indicators:economic conditions, market share, market concentration, capital adequacy, non-performing loan ratio, the proportion of non-interest income, the cost to income ratio, asset size. On this basis, we select the2004-2011panel data of the four state-owned banks and nine listed joint-stock banks, use multiple linear regression model, and use the F-test and Hausman test to ensure the correctness of the regression results. Due to the significant difference in ownership structure and profit model between state-owned banks and joint-stock banks, This paper first conduct regression analysis to the four big state-owned banks and joint-stock banks respectively to find the different points of impact factors between them and give a comparative analysis, then we attach a result with regression analysis of all sample banks. The empirical results show that:according to the influence in descending rank, the impact factors of state-owned banks are as follows:the economic boom, the non-performing loan ratio, asset size and the cost to income ratio, of which the economic boom is proportional to bank profitability, other three factors are inversely proportional to bank profitability. The impact factors of joint-stock banks are: market concentration, capital adequacy, the cost to income ratio and asset size, of which market concentration and the cost to income ratio are inversely proportional to bank profitability, capital adequacy and asset size are proportional to bank profitability. There are really significant differences in the impact factors between them, which is related to their credit structure, market position, their own operational efficiency, and then this paper analyzes the cause of these differences.On the basis of the empirical results, this paper further analyzes the sustainability of bank profitability. In the economic boom, china is faced with the Lewis turning point, Demographic dividend will disappear. In non-performing loans rate, the risk of local government financing platforms continues to accumulate, banks face a potential loss given default. In the cost to income ratio, market-oriented interest rate reform continues to accelerate, spread income will be reduced. Bank profitability are facing challenges. Finally, on the basis of the empirical result, this paper proposes the corresponding policy recommendations on how to improve the bank profitability of our country, combined with new kinds of policies taken by our government, such as "the Chinese version of the Basel3","commercial banking services price management approach", to guide more private capital into the financial sector and so on. From a macro point of view, the credit structure should be changed and cyclical economic fluctuations coping mechanism should be established. From a meso point of view, we should introduce private capital, optimize the structure of the market and enhance market competitiveness. From a micro point of view, we should raise the capital adequacy ratio, resolve the risk of local government financing platform, vigorously improve the banks’ ability to innovate, appropriately reduce the state-owned banks’ size, increase joint-stock banks’ size, and speed up the banks’ flat organizational structure reform.