The Impact of Revenue Diversification on the Performance of Chinese Commercial Banks

Abstract

Since the 18th National Congress of the Party, the intensity of financial reforms has been continuously increasing. Against this backdrop, the competitive environment within China's banking sector has become more challenging, leading various banks to confront a spectrum of challenges while also encountering opportunities for growth. With the advancement of marketization, numerous banks have engaged in various forms of operations. This paper employs the Generalized Method of Moments (GMM) dynamic panel model to investigate the impact of diversified operations on the performance of Chinese banks. It posits that the advantages of contemporary diversified operations have not been fully realized due to factors such as operational costs and risk exposure. Accordingly, Chinese commercial banks should devise enhanced risk management strategies, bolster oversight, foster ongoing innovation, and progressively embark on diversified operations. This approach aims to manifest the benefits of operational diversification, thus fostering improvements in banking performance.