Abstract
China’s commercial banks have developed at a very rapid speed in recent decades. However, with global economic development slowing down, the impact of gross domestic product growth as an exogenous factor cannot be ignored. Most existing studies only consider the internal factors of banks, and neglect their external economic factors. This study thus adopts an undesirable dynamic slacks-based measure under an exogenous model in combination with the Kernel density curve to explore the efficiency of state-owned commercial banks (SOCBs), joint-stock commercial banks (JSCBs), and urban commercial banks (UCBs) in China from 2012 to 2018. The results show that SOCBs have the highest overall efficiency, followed by JSCBs, then UCBs. The efficiencies of SOCBs, JSCBs, and UCBs in the financing stage are greater than those in the investment stage, indicating that the latter stage brings down overall efficiency. Thus, all commercial banks need to focus on the efficiency of non-performing loans and return on capital. Finally, SOCBs need to strengthen internal controls, reduce non-performing loans and improve return on capital. JSCBs should actively expand its business while controlling costs, and UCBs should optimize its management.
Highlights
According to the latest data released by The People’s Bank of China, the total assets of financial institutions reached 318.69 trillion Yuan at the end of 2019, with banking institutions accounting for 91%
Desirable output is Y2tgood, which is the return on capital; undesirable output is Y2tbad, which is the non-performing loans; The exogenous variable is Eotk, which means Gross domestic product (GDP) growth; and the carry-over variable is Zo(tk,l(itn+p1u)t), which is the logarithm of bank assets
It is found that the performances of the three types of commercial banks in China are greatly affected by the macro-level environment, such as GDP growth
Summary
According to the latest data released by The People’s Bank of China, the total assets of financial institutions reached 318.69 trillion Yuan at the end of 2019, with banking institutions accounting for 91%. According to the two-stage inverse DEA with undesirable outputs, An et al (2019) suggested that China’s commercial banks should do the following: (1) increase their operating costs and interest expenses to fulfill their short-term tasks; (2) keep the amount of deposits at a reasonable and effective level; (3) improve the business level of their employees; and (4) scrutinize the creditworthiness of their borrowers. This paper fully considers internal and external factors, and uses undesirable dynamic slacks-based measures (UDSBM) under an exogenous model to study the overall efficiency, stage efficiency, and improvement of SOCBs, JSCBs, and UCBs in greater detail. This paper combines the concepts of the Tone and Tsutsui and SBM model, non-desirable outputs, exogenous variables, and the common boundary model of Donnell (2008) to set up a new model, called the meta UDSBM under an exogenous model This model is used to evaluate the financing and investment efficiency of 34 listed commercial banks in China during 2012–2018.
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