Banking reforms, performance and risk in China

We investigate the impact of the banking reform started from 2005 on ownership structures in China on commercial banks’ profitability, efficiency and risk over the period 2000–2012, providing comprehensive evidence on the impact of banking reform in China. We find that banks on average tend to have higher profitability, lower risk and lower efficiency after the reforms, and the results are robust with our difference-in-difference approach. Our results also show that the Big 5 state-owned banks (SOCB) underperform banks with other types of ownership when risk is measured by non-performing loans (NPLs) over the entire study period but tend to have fewer NPLs than other banks during the post-reform period. Our results provide some supporting evidence on the ongoing banking reforms in China, suggesting that attracting strategic foreign investors and listing SOCBs on stock exchanges appear to be effective ways to help SOCBs deal with the problem of NPLs and manage their risk

Banking Reform and Efficiency in China: 1995-2008

Employing the one-step stochastic frontier analysis (SFA) approach, this paper examines bank efficiency in China, paying special attention to the ownership, selection effect and dynamic effects of governance changes on bank performance. Bank efficiency has improved over the data period 1995-2008. The estimated average cost and profit efficiencies are 74% and 63% respectively. Joint Stock Commercial Banks (JSCBs) and City Commercial Banks (CCBs) outperform State-owned Commercial Banks (SOCBs). The results suggest a strong selection effect for foreign investors. Foreign ownership participation has a negative effect on profit efficiency in the long-term while initial public offerings (IPOs) improve bank profitability in the short-term. The research findings have important implications on future bank reforms in China in the aftermath of the current financial crisis.SFA, Efficiency, Banking, China

Spillover effects of FDI inflows on the banking industry in China.

The study examines the magnitude of economic spillover and the impact of foreign direct investment (FDI) inflow on the efficiency of the bank management in China This study examines direct and indirect spillover in the short-run and their economic spillover in the long-run. Unit root tests, cointegration tests, vector error correction models, and Wald tests are employed in the empirical analysis using monthly time series data from January 2002 to September 2013 retrieved from the Bank of China database. In testing long-run economic spillover, this study finds that FDI inflows have a significant economic spillover, but the spillover is likely to be negative. In testing short-run economic spillover, this research finds that FDI inflows have a significant positive direct effect on the efficiency of the bank management in Chain

Bank ownership and efficiency in China: what lies ahead in the world’s largest nation?

China is reforming its banking system, partially privatizing and permitting minority foreign ownership of three of the dominant ‘big four’ state-owned banks. This paper seeks to help predict the effects of this change by analysing the efficiency of virtually all Chinese banks in the years 1994–2003. Our findings suggest the big four banks are by far the least efficient and foreign banks the most efficient while minority foreign ownership is associated with significantly improved efficiency. We present corroborating robustness checks and offer several credible mechanisms through which minority foreign owners can increase Chinese bank efficiency. These findings suggest that minority foreign ownership of the big four is likely to significantly improve performance.foreign banks; efficiency; foreign ownership

Foreign bank entry, performance of domestic banks, and sequence of financial liberalization

The openness or internationalization of financial services is a complex issue because it is closely related to structural reforms in the domestic financial sector with some perceived implications for macroeconomic stability. The authors investigate the impact of foreign bank entry on the performance of domestic banks and how this relationship is affected by the sequence of financial liberalization. Their data set is constructed from the BANKSCOPE database, including 30 industrial and developing countries, and covering the period from 1995 to 2002. The authors apply panel data regressions by pooling all countries together, and by grouping countries according to the sequence of their financial liberalization. One observation based on descriptive analysis is that the degree of openness to foreign bank entry varies a great deal, which is not correlated with average income levels or with GDP growth. Second, the sequence of financial liberalization matters for the performance of the domestic banking sector: After controlling for macroeconomic variables and grouping countries by their sequence of liberalization, foreign bank entry has significantly improved domestic bank competitiveness in countries that liberalized their stock market first. In these countries, both profit and cost indicators are negatively related to the share of foreign banks. Countries that liberalized their capital account first seem to have benefited less from foreign bank entry compared with the other two sets of countries.Payment Systems&Infrastructure,Economic Theory&Research,Financial Crisis Management&Restructuring,Banks&Banking Reform,Fiscal&Monetary Policy,Banks&Banking Reform,Financial Economics,Economic Theory&Research,Financial Crisis Management&Restructuring,Banking Law

Cost and profit efficiency of french commercial banks

The purpose is to investigate the efficiency levels of commercial domestic versus foreign banks in France by comparing the use of basic accounting ratios and the stochastic cost and profit frontier analysis (SFA). We analyze the profit and cost efficiency of domestic and foreign banks operating in France using unbalanced sample, including 62 domestic and 40 foreign banks over the period 2000-2007. We show that foreign banks exhibit higher cost and profit efficiency than domestic banks. This finding goes against previous empirical literature, concluding on advantage of cost efficiency for domestic banks in developed countries such as France (Berger et al. (2000)). However, the comparison between the cost efficiency and the profit efficiency scores, suggests that foreign banks are better managed in terms of profit efficiency mainly due to higher cost efficiency. On the other side, profit efficiency of domestic banks, was due to higher revenue efficiency. This suggests that French domestic banks operate with excessive margins.efficiency, domestic banks, foreign banks

Finance and Firm Start-up Size: Quantile Regression Evidence from China

Using a unique dataset which provides information on the financial structure of start-up companies in the Chinese manufacturing industry, this paper documents robust evidence that access to formal financing channels has beneficial effects on firm size, these effects being more marked as we move up the entry size distribution. By contrast we find negative relationships between informal finance and entry size across all size quantiles. Given the well-documented positive correlations between firm size and numerous performance indicators, this paper has therefore uncovered entry size as an additional channel through which financial development promotes growth.China, finance, growth

Trade in Financial Services--Has the IMF Been Involved Constructively?

This paper considers the key policy issues related to liberalization of trade in financial services that the IMF should be concerned with, and the role the IMF has played in advising on policies related to trade in financial services in its bilateral and multilateral surveillance and conditionality attached to lending programs. IMF staff were generally aware of the literature and country experiences showing the benefits of financial liberalization. But Fund advice in support of liberalization can be best interpreted to be in support of country unilateral policy actions and the dynamics of the WTO accession process.financial liberalization, foreign banks, GATS, IMF

Trade in Financial ServicesÑHas the IMF Been Involved Constructively?

This paper considers the key policy issues related to liberalization of trade in financial services that the IMF should be concerned with, and the role the IMF has played in advising on policies related to trade in financial services in its bilateral and multilateral surveillance and conditionality attached to lending programs. IMF staff were generally aware of the literature and country experiences showing the benefits of financial liberalization. But Fund advice in support of liberalization can be best interpreted to be in support of country unilateral policy actions and the dynamics of the WTO accession process.Trade Liberalization in Financial Services; IMF Surveillance and Conditionality

Does the Chinese banking system benefit from foreign investors?

We find empirical evidence that the Chinese banking system has benefited from the entry of foreign investors through higher profitability and increased efficiency of the banking system. Foreign participation, which consists of a minority stake in a Chinese bank (in contrast to the typical pattern in emerging countries), appears to be most effective when the foreign bank acts as a strategic investor. Purely financial investors contribute little, if anything, to bank performance.China; banking system; foreign participation