Empirical Research On China’s Commercial Banks’ Profit Ability

The strength of the commercial bank profitability directly relates its survival anddevelopment. The improvement of profitability can enhance the bank credit, enhance thebank’s capital strength, attract more customers, enhance the ability of resisting risk andimprove the competitiveness of the bank.Since the entering of WTO in2001and the opening of Renminbi retail business toforeign banks in2006, china’s banking industry has undergone more and more intensecompetition. Compared to advanced international banks with abundant funds, advancedtechnology and multiple financial services, china’s commercial banks, especiallystate-owned commercial banks is the characteristics of weak profitability, not perfectcredit risk prevention system, low levels of management,lack of innovation ability. Withthe deep reform of financial system, china’s banks matter is solved to some extent. But,to improve its profitability and ensure the sustainable development of china’s banks, wenot only deal with problem left over by history, but also pay attention to improving oftheir profitability. Under this background, we try to do the research about the profitabilityof china’s commercial banks.First of all, based on the conceptualization of profitability and prior literature inbanking research, we use principal component analysis method to study the sample data.Calculating and ranking those commercial banks’ profitability to show the general leveland changing trend. Second, on the basis of theoretical analysis of influencing factorincluding the bank’s own characteristics and external environment factors, we select therelated index to build index system. Then, we use14major commercial banks (fourstate-owned commercial banks and ten small and medium-sized commercial Banks banks)of the panel data (2006to2011), we build an empirical model using econometricmethods to test the correlativity between profitability and the influencing factors. Finally,combined with the empirical results, we give some policy suggestion to enhance theprofitability of commercial banks in China.