Fintech and bank efficiency: a robust nonparametric approach for Chinese commercial banks

2001년 12월 11일 중국은 WTO에 가입하면서 2006년 12월 11일까지 5년 사이에 금융시장을 완전 개방하여야 했다. 때문에 중국정부는 금융의 주체인 상업은행의 경쟁력을 강화하기 위하여 4대 국유상업은행의 주식제 개편을 추진하였다. 본 논문은 국유상업은행의 주식제 개편이 과연 은행의 경영효율성을 향상 시킬 수 있는가를 검정하기 위하여 2000년 초부터 2006년 말까지를 시점으로 실증분석을 하였다. 은행효율성을 측정하기 위한 방법론으로는 거리함수(distance function)를 사용하였는데 그 중에서 특히 은행경영에서 불가피적으로 부실대출 비율이 발생하는 것과 같이 산출물 중에 유해산출물(bad output)이 존재할 경우의 분석에 적절한 방향성 생산거리함수(directional distance function)를 사용하였다. 실증분석에 사용된 투입물로는 직원 수, 영업용고정자산, 자기자본이고 정상산출물은 세전이익, 대출금이며 유해산출물은 부실대출비율이다. 분석결과 국유상업은행의 주식제 개편은 은행효율성의 향상에 일정한 영향을 미친 것으로 나타났다. On December 11, 2001, China joined the WTO and became one of the member countries and the Chinese financial markets had to be open in 5 years. So, the Chinese government transformed national commercial banks into joint-stock banks. The purpose of this paper is to investigate the validity of this decision by the Chinese government. In order to measure the efficiency of banks, the directional distance function (DDF) methodology is used, which analyzes whether a bad output exists in the outputs. In the empirical analysis, the number of staffs, the fixed assets, and the equity capital are used as inputs, while the loans and the non-performing loans ratio are used as a good output and a bad output, respectively. The non-performing loans ratio is included in output since it could affect the efficiency of banks. If it isn't considered in the analysis, a distortion might occur in analyzing the efficiency of banks. The results show that the efficiency of the major commercial banks was improved, and that the efficiency of joint-stocks banks was higher for 2002-2003 while the efficiency of national commercial banks was higher for 2004-2006. It was due mainly to the foreign exchanges reserve funds injected into national commercial banks by the Chinese Ministry of Finance, and as a result bad assets were eliminated.

This study, targeting the data of 75 Chinese commercial banks (2003-2016), verified the effects of government ownership on efficiency of banks by applying stochastic frontier approach (SFA). The main results of the empirical analysis are as follows. First, as a result of the analysis using stochastic frontier model, high capital ratio, low loan-loss reserve ratio, and low cost to income ratio had positive effects on profitability of banks. Net loan ratio had positive effects on profitability of only joint-stock commercial banks (JSCBs). Second, as a result of verifying efficiency determinants of banks, low government ownership, listed banks, and high asset growth rate and operating profit per employee had positive effects on efficiency of banks. The study results indicate that the inflow of private capital into Chinese commercial banks lowers government ownership, improving governing structure and efficiency through enhancement of supervisory function.

This study, targeting the data of 75 Chinese commercial banks (2003-2016), verified the effects of government ownership on efficiency of banks by applying stochastic frontier approach (SFA). The main results of the empirical analysis are as follows. First, as a result of the analysis using stochastic frontier model, high capital ratio, low loan-loss reserve ratio, and low cost to income ratio had positive effects on profitability of banks. Net loan ratio had positive effects on profitability of only joint-stock commercial banks (JSCBs). Second, as a result of verifying efficiency determinants of banks, low government ownership, listed banks, and high asset growth rate and operating profit per employee had positive effects on efficiency of banks. The study results indicate that the inflow of private capital into Chinese commercial banks lowers government ownership, improving governing structure and efficiency through enhancement of supervisory function.

Purpose – The purpose of this paper is to estimate the cost and profit efficiency (PE) of Chinese commercial banks in the last ten years and investigate how market power affects bank efficiency and stability. Design/methodology/approach – The paper builds a stochastic frontier analysis model to evaluate the cost and PE of commercial banks. The paper then uses a Lerner index and Z-index to represent market power and stability, respectively. In addition, the paper empirically analyzes the relationship between market power and bank efficiency, stability in the last ten years. Findings – The results show that the efficiency of banks on the Chinese mainland increased during the study period, but is still lower than that of banks in Hong Kong; moreover, the efficiency of four state-owned commercial banks is lower than that of medium and small banks. Market power has a negative relationship with efficiency while its relationship with stability varies among Chinese banks. Research limitations/implications – The results imply that the promotion of financial liberalization and banking reform to introduce an appropriate competition mechanism has had a positive effect on the efficiency and stability of Chinese commercial banks. Practical implications – Thus, the paper will contribute to deepen reform and opening up the banking sector in China. Social implications – The healthy development of banking can enhance the ability of banks to withstand financial risks, to promote the harmonious development of society. Originality/value – The paper estimates the cost and PE of Chinese commercial banks using SFA model and investigates how market power affects bank efficiency and stability. The study design has a certain novelty, where Lerner index and Z index are used, respectively, to measure market power and stability and management efficiency of commercial banks is investigated from two aspects – PE and cost efficiency – by the translog cost function, instead of Douglas production function. In addition, the paper tries to put some of Hong Kong banks included in the study sample, and has a certain reference value.

Using China's 14 commercial banks 1998–2007 panel data, this article measured the efficiency of China's commercial banks by alternately using static and dynamic efficiency measurement model, and estimated the possible impacts of various factors on the efficiency of those banks by applying fixed effect, random effect and dynamic panel data model.

This study tried to assess factors affecting the efficiency and performance of Ethiopian commercial banks. Nine years audited financial data (i.e.2010-2018) was used to analyze the effect of explanatory variables on the explained variables using explanatory research design with quantitative research approach. Banks play a great role in the development of the countries. They act as financial intermediaries between the parties with lack of capital and parties with surplus capital. In order to perform their functions first their financial healthiness should be improved. In this study performance of the banks was measured by ROA and efficiency of the banks by efficiency ratio. On the other hand, factors that could be affect the performance of the banks were capital adequacy, assets quality, management capacity, earning quality, liquidity position, GDP and age of banks were used using different measurement mechanisms. Random effect GLS regression result indicated that management capability, assets quality and earning quality significantly affect the performance of the banks measured by ROA. On the hand, assets quality, earning quality, liquidity and age of the banks has significant effect on the efficiency of the banks. Capital adequacy, GDP and age of the banks have no impact on the ROA, and capital adequacy, management capacity and GDP do not have significant effect on the performance of the banks measured by efficiency ratio. According to the finding, management capability and earning quality have positive effect on the performance of the banks. Keywords: CAMEL, ROA, Performance of the banks, Efficiency ratio and commercial banks DOI: 10.7176/RJFA/11-5-01 Publication date: March 31 st 2020

Will the development of FinTech improve the efficiency of commercial banks in China? In recent years, FinTech has been continuously developing and applying to the financial industry which has brought opportunities and challenges to the operation and management of commercial banks in China. We focus on the empirical analysis of the impact of FinTech on the operating efficiency of commercial banks. By examining Chinese commercial banks as an empirical sample, we find that the development of FinTech has a significant role in promoting the efficiency of Chinese commercial banks. On this basis, we further compared the feedback of changes in the efficiency of different Chinese commercial banks to the development of FinTech. Accordingly, the efficiency changes of city commercial banks in China have been most significantly affected by the development of FinTech. Based on the empirical results, the financial development elements are further added to explore the geographical characteristics of city commercial banks. We find that the development of FinTech has a stronger effect on the efficiency change of city commercial banks in areas with higher levels of financial development.

Banking industry being the knowledge-intensive industry plays an important role in enhancing economic growth of the country. In this whimsical world of technology where Indian Commercial banks are facing intense competition both from domestic as well as international players, the working of this industry have changed drastically with the onset of e-banking period. Such technology-banking or e-banking era is a stimulant to enhance not only economic growth of the country but also efficiency of banks. In this context, this paper is an attempt to study the efficiency of commercial banks in India during pre and post banking period. Also, this study suggests policy recommendations for Indian banking industry to cope the inefficiency and face the competition boldly.

The recent global crisis has highlighted the role of prudent supervision and regulation in the financial system on both a national and a global scale. As an emerging market, the Turkish banking sector experienced the banking reform process almost a decade ago. The legal and institutional structure of the Turkish banking sector changed tremendously after the twin crises of 2000 and 2001. The aim of this study is to assess the impact of the regulatory policies on the efficiency of different-sized commercial banks in the Turkish banking sector during the period 2002-10. We implement a new approach in data envelopment analysis (DEA) that integrates lending quality and apply it to bank efficiency analysis. DEA is used to assess the long-term performance trend in the context of balance sheet and revenue approaches. Empirical results indicate that regulatory policies have a positive effect on the efficiency of banks. Large- and medium-size banks outperform medium-large and small banks. The notable finding is that the efficiency scores are much lower, and the global crisis more apparent, when nonperforming loans are integrated into the DEA Model.

The aim of this study is to explore the effect of digital transformation on the efficiency of retail banks in India. Digital transformation is represented by two contemporary technologies, namely: smart branches and cryptocurrencies. The paper tests the direct effects of these factors on efficiency and indirect effects mediation by the market power of commercial banks. This aim is pursued and attained using the quantitative research design and methods of Data Envelopment Analysis (DEA) and panel regression analysis. The sample comprises thirty-four commercial banks in India retrieved from the Bureau van Dijk database for the period from 2012 to 2018. The conceptual framework of this study is represented by the extension of the Structure Conduct Performance (SCP) Paradigm. The main dependent variables are represented by Efficiency Scores estimated using DEA with the assumptions of constant returns to scale, variable returns to scale, and decreasing returns to scale. The market power of commercial banks in India is measured by their concentration ratios linked to total assets. The key variables of digital transformation are the support of cryptocurrencies and the availability of Smart Branches. The results reveal that the support of cryptocurrencies is shown to produce no significant effects either on market power or efficiency of banks confirming there is no direct and indirect relationship between digital currencies and the efficiency of banks. Smart branches demonstrate a significant positive effect on market power but no direct effect on efficiency. Therefore, it is evidenced that the technology of smart branches currently has an indirect effect on the efficiency of banks in India, mediated by the market power of banks. The results have implications for banks and bank managers who are recommended to invest in smart branches to maintain and increase their market share and serve more customers. However, the work is limited by the availability of data with higher frequency, the limitation of DEA to study only technical efficiency, and the limitations of regression analysis, which omits qualitative factors and is not able to explain all changes in dependent variables.

Purpose - the purpose of the research is to examine the impact of fintech on bank efficiency in the Asian banking industry, where bank efficiency has been measured using the DEA (data envelopment analysis) approach for technical efficiency as a proxy. Methodology - the methodology of the research includes the sample consisting of 92 privatized commercial Asian banks from 2016-2022 and uses cross-country analysis. The panel regression models have been utilized, consisting of a fixed effect model. The model has run after the diagnostic check and the data validation has been satisfied with the stationary, serial autocorrelation, heteroscedasticity, homogeneity and multicollinearity issues. Results - The results show that fintech funding has a significantly positive effect on bank efficiency. Based on the results, it concludes that fintech funding is doing innovations using funding and improving efficiency in Asian banks. Implication - the implication derived from the empirical evidence of the study is that fintech funding brings innovations that positively consequence on bank efficiency in Asian banks. Limitation - the limitation of the study is that there was no data available before 2016 since fintech was a new technology during the time.

In this paper, we estimate the technical and allocative efficiency of Chinese commercial banks using both the stochastic frontier analysis primal system, a parametric method, and minimum convex input requirement set, a nonparametric approach. The effects of state ownership and the introduction of foreign minority shareholders (IFMS) on these two types of efficiency measures are also studied. Under both sets of efficiency estimations, the empirical results consistently show that state ownership has no significant effect on the allocative efficiency of Chinese commercial banks, and no significant negative influence on the technical efficiency of these banks. IFMS helps Chinese commercial banks to eliminate the constraints from some ossified institutions and optimize input combinations. These effects significantly enhance allocative efficiency, but exert no considerable influence on technical efficiency.

This paper examines empirical findings pertaining to commercial banks in India for the period 2001 to 2011. To calculate technical efficiency; a non-parametric data envelopment analysis approach has been applied. Banks have been classified into four groups on the basis of ownership. Technical efficiency has been calculated using two models based on different variables. Overall, it has been observed that during the deregulation period public sector banks have done well and adjusted during this period. SBI group have emerged leader among public sector banks. Results of the study are similar to the earlier studies conducted by various researchers. A policy implication of the analysis is that although efficiency of banks have improved during this period yet there are certain areas which need to be reviewed by the policy makers. In this inefficient use of scarce resources and managerial irregularities are found to be major cause of concern. Lastly contrary to the general belief, public sector banks have performed well as compared to their private counterparts. The policy of privatization of banking sector needs to be reviewed in the light of these findings.

PurposeThis paper aims to examine the interplay between risk, capital and efficiency of Indian banks and study how their relationship differs across different ownership types.Design/methodology/approachPanel regression techniques are used to analyze a large data set of all Indian scheduled commercial banks operating during the period 2008-2016.FindingsThe results show that lower efficiency is associated with higher credit risk in the case of public sector and old private sector banks (”bad management hypothesis”). However, higher efficiency leads to higher credit risk in the case of foreign banks (“cost skimping hypothesis”). The authors further find that the more efficient institutions among public sector hold more capital. Finally, they find that the better-capitalized banks among those in the public sector have lower risks on their balance sheets (“moral hazard hypothesis”).Originality/valueThere is a paucity of papers on the interplay between risk, capital and efficiency of banks in emerging economies. This paper is the first to study the inter-relationship between risk, capital and efficiency of Indian banks across ownership groups using a number of different measures of risk.

The study examined the exposure and efficiency of select public and private sector banks towards off balance sheet items byapplying Data Envelopment Analysis (DEA) on the key financial performance ratios of banks. The study covered a period of 5years ranging from 2013 to 2017 and conducted a year wise analysis. The study selected 20 different type of variables (financialvariables) for building Input –Output Model to test DEA for examining efficiency. These variables are acting as proxy variablesfor indicating the effect of Off balance sheet exposures on the financial health of the business. These variables are extracted fromthe financial statements of respective banks on a year on year basis and required adjustments are done. The study investigated theOff balance sheet exposures in the areas of Foreign Exchange Transactions, Guarantees, Acceptance and Endorsements etc., Theproxy variables, so identified for the study are employed for understanding various efficiencies of banks like scale efficienciesinvolve Constant Returns to Scale (CRS), Variable Returns to Scale (VRS) and average efficiencies like Technical Efficiency(TE), Cost Efficiency (CE), Allocative Efficiency (AE). The study find out that throughout the study period, the select banksexhibited constant returns to scale, except CUB and AXIS Bank in the first year of study (2013) displayed increasing returns toscale due to heavy exposures. In the category of efficiency parameters, AXIS Bank and CUB are displaying lower efficiencies inthe segment of private sector banks and Andhra Bank and OBC exhibiting lower efficiencies in the segment of public sectorbanks. Here lower efficiencies with references to cost savings aspects and output generation, this may be due to their scale ofoperations in the industry. The study concluded that large banks are exhibiting highest efficiencies than compared to small banksoperating in the industry. This is definitely an area for further research to the industry and researchers to examine the direct effectof Off balance sheet transactions (IFRS amendments in this direction only), so that credit risk can be reduced considerably in thebusiness. So that business houses can take up calculated risk in the international markets.