Study On Efficiency Of Chinese Commercial Banks

Recent years, commercial banks are facing a number of significant changes fromthe outside and inside, such as the realization of the joint-stock reform of state-ownedbanks, the improvement of their strength, as well as the competition cross industry, thefurther implementation of market-oriented reform of interest rates and so on. It isparticularly important to study Chinese commercial bank’s efficiency. As aself-financing enterprises, we can know their competitiveness in the market from theresearch on efficiency, on the other hand, commercial banks are the main body in ourfinancial system,and not only have great impact on the stability and development offinancial system,but also have a strong influence on national economy. As a result,the study on commercial banks’ efficiency means a lot.Efficiency is the issue about how operate with minimal input for maximum output.Based on the theory and measurement method of commercial bank’s efficiency, thispaper gives a result of the efficiency about our commercial banks during past ten years,and studies further the relationship between efficiency and risk, at the same time,analyzes the influencing factors.The two main measurement method of efficiency are parametric andnon-parametric method. This paper compares the advantages and disadvantages of thetwo methods, and combine with the actual situation, choose stochastic frontier approach(SFA) to evaluate the efficiency on the basis of translog production function. We havefound that our commercial banks have a high efficiency, and there are little differenceamong banks, while the trend can be divided into three stages: from1996to2007, theefficiency keeps rising volatility, from2007to2010, keeps declining slightly, after2010,the efficiency rises again.After the empirical study of efficiency, this paper assess the relationship betweenefficiency and risk using a method of Granger causality test and sys-GMM.Theempirical result indicates that the higher efficiency Granger-causes higher risk, whichgives an evidence of “cost skimping” hypothesis.Furthermore, we discuss theinfluencing factors on efficiency. We found that the economic growth, the scale of shadbank and the degree of innovation have a significant impact on efficiency while the sizeof bank has no significant influence.Finally, based on the above results, the study gives some suggestions to improve efficiency in the new situation. In short, there are three aspects to satisfy the needs ofself-development and adapt to the external changes. Commercial banks shouldstrengthen risk management, change operating philosophy and establish a diversifiedtalented team.