Diversification Strategy, Profit Form And City Commercial Bank Performance

With China’s reform and opening up to furtheradvancement, especially, some state-owned commercialbanks speed up the transformation and foreign financialinstitutions enter. The city commercial banks of therelatively small size are faced with severe challenges andmust make the new and strategic adjustments.In the new market environment, each of the commercialbanks mostly competes for resources by expanding thebusiness to support the required development target. Amongthem, diversification strategy is one of the most commonoptions. Although part of the city commercial banks reformfast, not only completing the shareholding reform but alsolanding the domestic and foreign stock exchangesuccessfully, compared with other state-owned banks, thedevelopment trend of the city commercial banks is notoptimistic. The city commercial banks must find a new pathto seek a more unique way to maintain the present situationand make a breakthrough on this basis. The reform of city commercial banks is a process of dynamic game. Theformulation of bank relevant policies or the possibleoutput of the mechanism design may have dynamic (non)consistency.How to seek for the healthy and sustainable developmentof city commercial banks needs to make a new choice underthe current circumstances. In order to obtain a higherprofit and reduce credit risk in the meanwhile, the bankusually tends to put the credit funds to large enterpriseswhich have strong financial security and exclude small andmedium-sized enterprises of the high rate of assets andliabilities, lack of brand competitiveness, the low rateof return from the supply of credit. There appear theso-called phenomena of bank’s reluctance and cautiousloan.However, with the process of China’s interest ratemarketization accelerating, commercial banks are facedwith a new pattern which exists narrower margins and thefurther intensified market competition.City commercial banks should indentify the objectives of the futuredevelopment as SMEs customers. Through its loan, innovatefinancial products and financial services, activelyexpand the customer base, improve the risk management,reduce the probability of bad loans,change the traditionalcommercial banks focusing on credit as the main businessprofit model, and strive to open up the innovation offinancial products and the management mode, which make thecommercial banks maintain the absolute advantage in theincentive market economy.