The Research On The Impacts Of Business Diversification On The Performance Of Commercial Banks

In recent years, because of the global wave of financial integration, the modern commercial banks present the diversified development trend. The effect of business diversification on performance has become one of the focuses of academic circles. This paper firstly mainly describes the influencing mechanism of business diversification on the performance of commercial banks with scope economies, market power and other theories and analyzes the influencing factors of business diversification for banks in theoretically. Secondly, the paper which based on net interest income, fees and commissions and other variables, use HDI index measures the business diversification level of the commercial banks. At the same time, it uses the return of total assets to measure the bank performance. Then the paper analysis the diversification trends on different type of banks and the statistical description between business diversification and the performance of banks. Statistical analysis shows that business diversification of all samples is low, which is due to the strict financial regulation in domestic and the unreasonable business structure. Thirdly, the article takes the financial data which from2006to2012year of16commercial banks as samples and uses panel data model to make empirical research. The results show that business diversification has a positive impact on the performance of all the sample banks in China, but the coefficient of HDI variable is low. Meanwhile, business diversification in both state-owned banks and joint-stock banks has a positive effect on their performance, but the coefficient of HDI variable in joint-stock banks is lower than state-holding banks’. The reasons of the low coefficient in joint-stock banks are higher business cost and larger earnings volatility. Moreover, the empirical results show that banks with high levels in business diversification have a greater positive effect on performance. Finally, for the conclusion of this study and analysis, this paper which is from policy-makers and the banks two aspects, puts forward to improve the regulatory to promote the development of business diversification, optimize the business structure to advance the development of differentiation, strengthen the cost management of diversified business of banks and improve the ability of risk control.These proposals can provide some ideas for the ways to implement business diversification and to improve the bank performance.