scholarly journals Risk, Competition and Cost Efficiency in the Chinese Banking Industry

2016 ◽  
Author(s):  
Yong Tan ◽  
Christos Floros
Keyword(s):  
Cost Efficiency ◽  
Banking Industry ◽  
Chinese Banking Industry ◽  
Chinese Banking

scholarly journals The profitability of Chinese banks: impacts of risk, competition and efficiency

2017 ◽  
Vol 16 (1) ◽  
pp. 86-105 ◽  
Author(s):  
Yong Tan ◽  
Christos Floros ◽  
John Anchor
Keyword(s):  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Industry ◽  
Liquidity Risk ◽  
Security Risk ◽  
Bank Profitability ◽  
Content Type ◽  
Insolvency Risk ◽  
Chinese Banking Industry ◽  
Chinese Banking

Purpose This study aims to test the impacts of risk-taking behaviour, competition and cost efficiency on bank profitability in China. Design/methodology/approach A two-step generalized method of moments system estimator is used to examine the impacts of risk, competition and cost efficiency on profitability of a sample of Chinese commercial banks over the period 2003-2013. Findings The paper finds that credit risk, liquidity risk, capital risk, security risk and insolvency risk significantly influence the profitability of Chinese commercial banks. To be more specific, credit risk is significantly and negatively related to bank profitability; liquidity risk is significantly and positively related to return on assets (ROA) and net interest margin (NIM) but negatively related to return on equity (ROE); capital risk has a significant and negative impact on ROA and NIM but a positive impact on ROE; there is a significant and negative impact of security risk on bank profitability (ROA and NIM). It is found that Chinese commercial banks with higher levels of insolvency risk have higher profitability (ROA and ROE). Finally, higher competition leads to lower profitability in the Chinese banking industry, and Chinese commercial banks with higher levels of cost efficiency have lower ROA. In other words, the structure–conduct–performance paradigm rather than the efficient–structure paradigm holds in the Chinese banking industry. Originality/value This is the first paper to investigate the impact of different types of risk, including credit risk, liquidity risk, capital risk, security risk and insolvency risk, on bank profitability. This is the first study which uses more accurate measurements of efficiency and competition compared to previous Chinese banking profitability literature and which tests their impact on bank profitability. The findings not only provide a general picture on the risk, efficiency and competition conditions in the Chinese banking industry, but also give valuable information to the Chinese Government and to the banking regulatory authorities to make relevant policies.

scholarly journals Does competition only impact on insolvency risk? New evidence from the Chinese banking industry

2017 ◽  
Vol 13 (3) ◽  
pp. 332-354 ◽  
Author(s):  
Yong Tan ◽  
John Anchor
Keyword(s):  
Credit Risk ◽  
Commercial Banks ◽  
Banking Industry ◽  
Liquidity Risk ◽  
Empirical Literature ◽  
Content Type ◽  
Insolvency Risk ◽  
Chinese Banking Industry ◽  
The Impact ◽  
Chinese Banking

Purpose The purpose of this paper is to investigate the impact of competition on credit risk, liquidity risk, capital risk and insolvency risk in the Chinese banking industry during the period 2003-2013. Design/methodology/approach This study uses a generalized method of moments system estimator to examine the impact of competition on risk. In particular, translog specifications are used to measure the competition and insolvency risk. Findings The results show that greater competition within each bank ownership type (state-owned commercial banks, joint-stock commercial banks and city commercial banks) leads to higher credit risk, higher liquidity risk, higher capital risk, but lower insolvency risk. Originality/value This paper is the first piece of research testing the impact of competition on different types of risk in banking industry and it further contributes to the empirical literature by using a more accurate competition indicator (efficiency-adjusted Lerner index) and a more precise insolvency risk indicator (stability inefficiency).

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