What explains the low profitability of chinese banks?
- García Herrero, Alicia
- Gavilá, Sergio
- Santabárbara García, Daniel
ISSN: 0213-2710
Year of publication: 2009
Issue: 10
Pages: 9-35
Type: Working paper
More publications in: Documentos de trabajo - Banco de España
Sustainable development goals
Abstract
This paper analyzes empirically what explains the low profitability of Chinese banks for the period 1997-2004. We find that better capitalized banks tend to be more profitable. The same is true for banks with a relatively larger share of deposits and for more X-efficient banks. In addition, a less concentrated banking system increases bank profitability, which basically reflects that the four state-owned commercial banks -China�s largest banks- have been the main drag for system�s profitability. We find the same negative influence for China�s development banks (so called Policy Banks), which are fully state-owned. Instead, more market oriented banks, such as joint-stock commercial banks, tend to be more profitable, which again points to the influence of government intervention in explaining bank performance in China. These findings should not come as a surprise for a banking system which has long been functioning as a mechanism for transferring huge savings to meet public policy goals.