Research On Profit Margin Of Commercial Banking Industry In China

In recent years, the high profit rate of the commercial banking industry has been ahot issue in the theoretical and practical circles. The listed company’s annual report in2011shows that the commercial banking sector is one of the country’s most profitable industry, and itsreturn on capital has not only significantly higher than the industry, and higher than theoil and tobacco industries. Many experts said that monopoly contribute to high profitsof banking, they think that the lack of competition caused by the monopoly marketstructure is an important factor to maintain high profit margins in commercial banking;However, some scholars believe that, with the deepening of the reform of the bankingsector, internal governance, cost control of commercial bank has been greatly improved,and technological progress is the main reasons for commercial banking sector continueto maintain high profit margins. These two different points of view result differentpolicy recommendations.Based on the theory of market structure and performance, this paper study therelationship between profitability and market structure, technological progress. In thetraditional market structure and performance theory hypothesis, the efficiency is a staticconcept, which reflect the relative efficiency between different enterprises of the sameperiod.This paper extends the concept of efficiency in the market structure andperformance theory hypothesis, dividing the efficiency into static efficiency anddynamic efficiency. Dynamic efficiency which be defined technological progress,reflect the increased efficiency of the different periods. We use the the simple DEAmethod to estimates the overall efficiency of variable value as static efficiency, and useMalmquist TFP index method to estimates the total factor productivity as thetechnological progress variable.In the empirical part, on the basis of Berger model, this paper join a market shareand efficiency regression equation, constitutes a new model to test conventional SCPhypothesis, the relative market power hypothesis, pure efficiency structure hypothesis,correction efficiency structure hypothesis and mixing efficiency structure hypothesismodel. Then this paper use panel data from2004to2011followed by the commercialbanking industry to study the relationship between banking market structure and performance of the commercial banking industry in China, founding the five kinds ofhypothesis are unsubstantiated. However, through the analysis of the relationshipbetween market structure and market performance, we have come to three mainconclusions:1. Technological progress is an important decision variable in bankprofitability;2.Competitive market environment can promote the Bank of technologicalprogress, improve bank efficiency; At this stage of the modest market competition, therewill not only not significantly reduce the commercial bank profit margins, but willimprove the level of profitability of the bank. This is contrary to the conclusions of theEuropean and American banking, there is generally a positive correlation between theU.S. and European banking sector, market share, market concentration structurevariables and bank profitability indicators. From financial repression, this paperanalyses the reasons for negative correlation between China’s commercial bankingindustry concentration and profitability.Finally, based on the conclusions drawn from the analysis, this paper put forwardpolicy recommendations from technological advances and market structure. Theinnovative point of this article may:1. Model proposed by Berger is often used to studythe relationship between profitability and market structure and technological progress,but it can only test four hypotheses.For the relative market power hypothesis, due to themulticollinearity problem may exist between market share and efficiency, this paper adda new regression equation model to simultaneously test five hypotheses.2. The articleextend the efficiency of the market structure and performance of the traditionaltheoretical hypotheses to static efficiency and dynamic efficiency, and study therelationship between technological progress and profit margins.3. Most of the previousstudies literature on the profit margins of commercial banks only study one aspect of themarket structure or technological progress to analyze the profitability. This papercombines market structure and technological progress, more comprehensive studying ofthe impact factors of the margin on the basis of the market structure and performancehypothesis.