Chinese Commercial Banks Research Articles

Climate Change Shocks and Credit Risk of Financial Institutions: Evidence from China’s Commercial Banks

ABSTRACT As global climate risk is looming in recent years, the climate risks faced by financial institutions are also increasing. Effectively quantifying and assessing climate-related financial risks is of great significance for financial institutions to establish risk management mechanisms. Accordingly, choosing Chinese commercial bank data from 2007 to 2019, this paper quantitatively evaluates the influence of climate change shock on the banks’ credit risk by taking the annual temperature fluctuation in cities as the core index to characterize the climate change degree. It is found that annual average temperature rise can significantly increase the credit risk level of commercial banks. Heterogeneity analysis indicates that small-scale banks, rural commercial banks, and commercial banks with higher marketization levels are more sensitive to climate change. Further analysis shows summer and autumn temperature changes have the most prominent impact on banks’ credit risk. Moreover, there is no obvious nonlinear relationship or lagged effects between annual temperature change and banks’ credit risk in our dataset.

The dark side of bank FinTech: Evidence from a transition economy

Using data from Chinese commercial banks from 2008 to 2018, this paper explores the effects of bank FinTech on stability (i.e., bank stability). We first construct and measure a bank Fintech index and then examine the relation between bank FinTech and stability. We argue that bank FinTech affects stability from two aspects: bright effects and dark effects. The results show that the dark effects prevail over bright effects, that is, bank FinTech decreases bank stability. Specifically, a one-standard-deviation increase in bank FinTech is associated with a 14.2 % reduction in bank stability. Our results also show that bank FinTech increases stability by improving risk control and increasing net interest margin (i.e., bright effects), whereas bank FinTech increases non-interest activities, and thus reduces stability (i.e., dark effects). Second, the negative impacts of bank Fintech on stability are weaker in state-owned banks. Third, as time progresses, the negative effects of bank Fintech become weaker. Finally, when we examine five subareas of bank FinTech, we find that artificial intelligence technology and big data technology increase bank stability, but internet technology reduces bank stability. Our main results pass a series of robustness tests and endogeneity issues.

Interest rate risk of Chinese commercial banks based on the GARCH-EVT model

Interest rate market risk faced by China’s commercial banks is increasing after the announcement that the interest rate marketisation is completed. This paper examines the Value-at-Risk, and statistical properties in the daily price return of Shanghai banks’ overnight offered rate. The study applies two-stage approaches, combining GARCH-type models with extreme value theory. Firstly, the Markov regime switching model is used to test the regime states of the series. Secondly, the performance of different VaR models are examined. Results show that the extreme value approach estimates better at the 99% confidence level. The EGARCH-GED model is the most suitable of the employed GARCH-type models. The back-testing results support the idea that the approach used in this study is appropriate for improving commercial banks’ daily risk management. This paper applies the GARCH-EVT method for interest rate measurement after China’s interest rate marketisation and added regime analysis of interest rate. Suggested policy implications will help formulate policies that guide the activities of commercial banks in China.

Does culture matter? Corporate reputation and sustainable satisfaction in the Chinese and German banking sector

AbstractCorporate reputation is important for all types of banks across the world, despite these countries differing culturally. Building on an extended corporate reputation model, we identify the key drivers of customer-based reputation and sustainable customer satisfaction in two culturally different countries, namely China and Germany. We also consider two reputation dimensions—perceived competence and likeability—and their effects on the target construct. Empirical data from 625 German and 734 Chinese commercial bank customers allow us to estimate the corporate reputation model with the partial least squares structural equation modeling (PLS-SEM) method, and by substantiating the relationships by means of a necessary condition analysis (NCA) and a predictive power analysis. By comparing the two countries’ results, we identify their cultural differences. Overall, we confirm the model’s relevance for the two cultures, finding that banks’ perceived attractiveness is the most important driver of both cultures’ customer-perceived bank reputation. By means of an importance-performance map analysis, we identify a large overlap between the two cultures’ set of important constructs, likeability’s much greater importance in Germany, and the perceived quality construct’s relevance in both countries. We contribute to research and scientific knowledge about corporate reputation models by identifying the similarities in and differences between two countries’ markets with respect to the banking sector, all of which have implications for international banks’ management.

A study on the operational performance of Chinese commercial banks considering time lag effects: A dynamic three-stage time-lag cross-efficiency model

In the multi-period and multi-stage operational process of banks, fixed assets, deposits, and non-performing loans (NPLs) are elements with time lag effects. Not or only considering one time-lag element could result in biased efficiency evaluation results. Therefore, this study proposes a dynamic three-stage time-lag range directional measure (RDM) cross-efficiency model that considers three types of time-lag elements simultaneously to assess the operational performance of banks more accurately and comprehensively. Moreover, the proposed model takes into account the following factors: non-oriented, cross-efficiency, negative data, and undesirable elements. This study conducts in-depth research on the operational performance of Chinese commercial banks and obtains the following observations. (1) The change degrees of different types of banks influenced by the different time-lag elements were inconsistent. (2) Three time-lag elements significantly influenced the operational performance of four types of banks, which was most significant for state-owned commercial banks. (3) All banks were assessed as inefficient during 2017–2021, and the highest average efficiency was found in the capital allocation stage, while the profitability stage ranked at the bottom. (4) Rural and joint-stock commercial banks had the best performance in all sub-stages, while state-owned commercial banks had the worst performance.

Risk Analysis on Chinese Commercial Banks in the Context of FinTech Empowerment

In recent years, most commercial banks are facing the innovation of information technology and digital technology in the context of financial technology, showing a positive development trend. Under this positive development, how to use financial technology to identify risks and effectively improve the efficiency and quality of risk management will become the core competitiveness of commercial banks in the future.Therefore, Studying risk management in the context of China's commercial banks with FinTech capabilities is crucial.This paper collates and summarises the results of previous studies through literature research and finds that there are two types of risks that persist in most commercial banks under the technological empowerment of FinTech, namely liquidity risk and credit risk. In addition, two additional risks, namely technology risk and data risk, are innovatively proposed in the context of FinTech-enabled commercial banks. After explaining in detail the four types of risks, namely liquidity risk, credit risk, technology risk and data risk, a detailed analysis of the above two main types of risks, namely liquidity risk and credit risk, is conducted through relevant data. Based on the problems identified, the paper proposes measures for Chinese commercial banks to cope with the above four types of risks in the context of FinTech-enabled commercial banks. This paper not only completes the current research system and framework, but also aids Chinese commercial banks in raising the level of their own risk management, which would promote long-term growth of the entire financial market.

Research on the Private Banks Centralized Management Systems in China

China Merchants Bank's private banking development has always occupied first place in China for nearly 10 years. Its centralized management system for the private bank division is worth learning from. This paper focuses on the Chinese private bank centralized management system, and from the comparison with the decentralized management systems in other Chinese commercial banks, such as ICBC and the Bank of China, analyzes the advantages of the centralized one. From the comparison, this study finds the AUM of China Merchants bank is much higher than ICBC and the Bank of China [1], and the assets per household are two times higher than the other two, indicating that China Merchants bank's clients hold more sickness than the other two. Based on the core idea of the three processes of value creation, value transmission, and value capture [2] and the development process of the China Merchants Bank, this study proposes the centralized management model for the private bank. In conclusion, this study indicates that centralized management systems have advantages over decentralized modes in the long run. To reform the decentralized systems, the model suggests centralizing the research team, database and digital platform, and managers assessment, which can create more professional investment advice, higher working efficiency, and different holding stages services.

Digital Transformation of Commercial Banks under the Impact of the Epidemic

Commercial banks are about to undergo a digital transformation, which will give Chinese commercial banks a competitive edge. This transformation will take place in light of the unfavorable global economic situation following the epidemic and the rapid development of new generation information technology. based on the three fundamental ideas of competitive thinking, client focus, and transformation direction Our systematic analysis and summary of the real-world experience of the digital transformation of foreign commercial banks is based on the three fundamental ideas of customer orientation, competitive thinking, and transformation direction. We then suggest the fundamental concepts and approaches for the digital transformation of commercial banks in China. The fundamental concepts and defenses against the digital revolution of Chinese commercial banks are put out.

The Analysis of Current Chinese Non-Performing Assets and Lessons and Insights Learned from Experiences of Foreign Banks' Non-Performing Assets

In China's banking industry, the problem of non-performing assets has a long history and a large scale. It has become a major obstacle to the development of our national economy. If the problem is not resolved, it will become more and more severe and may even lead to a financial crisis. Thus, learning from foreign experience to solve the NA of Chinese commercial banks as soon as possible is crucial to fundamentally solving financial risks. This paper analyze the current situation of NA in Chinese banks caused by national industrial policy adjustment, use of monetary funds and severe flaws in the money-operating banks' management systems. From the successful experience of foreign banks in resolving NA, Chinese banks can diversify and utilize multiple disposal methods, with the support of government, in order to overcome the challenges of NA.

Cost efficiency of Chinese banks: Evidence from DEA and MLP-SSRP analysis

Our study contributes to the empirical literature in two ways: 1) We propose an innovative Data Envelopment Analysis (DEA) model to estimate the cost efficiency of Chinese banks; 2) We propose a Stochastic Structural Relationship Programming (SSRP) Model based on neural networks to evaluate the interrelationships between efficiency and other bank-specific variables. The findings show that Chinese commercial banks experienced a gradual increase in the level of efficiency from 2010 up to 2015, after which the efficiency level experienced slight volatility and, by the end of 2018, ended up with an efficiency score of 0.746 on a scale of 0 to 1. We find that for banks with lower levels of efficiency, improvement in the efficiency level has a favorable effect on profitability, and these banks will also focus their business on traditional banking activities. Banks with higher levels of efficiency need to find alternative, profitable banking businesses in order to sustain their higher level of efficiency.

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

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.

Performance evaluation of Chinese commercial banks by an improved slacks-based DEA model

The national economy heavily relies on the banking sector, and researchers have been focused on discovering the most effective method of enhancing bank's overall efficiency. Data Envelopment Analysis (DEA) is a commonly utilized tool for measuring banking efficiency. We proposed an improved slacks-based measure model (SBM) with undesirable outputs using a by-production framework. In such case, the bank's operating process is considered as a parallel system. Inputs are categorized into interest costs and operating costs, which are then evaluated in two separate parallel stages. In the first stage, outputs are categorized into interest income and non-interest income, which are shared and considered as final outputs. In the second stage, non-performing loans are deemed as undesirable outputs. This proposed approach splits bank efficiency into two parallel stages, enabling us to identify the source of overall inefficiency, and effectively capture the efficiency differences between the two types of costs. To demonstrate the feasibility of the proposed approach, we have successfully applied it to 36 commercial banks in China from 2016 to 2021. The empirical results of the research prove that the changes of the banks' overall efficiencies were mainly due to the changes of stage 2. And this approach provides a rich source of information to assist in decision making.

Digitalisation and commercial bank performance: A test of heterogeneity from Chinese commercial banks

Although digitalisation is a reality for companies and contributes to value creation, few studies have examined its impact on commercial bank performance. The objective of this paper is to analyse how banks' digitisation contributes to their performance. The study finds that digitisation has a non-linear dynamic relationship with commercial bank performance, being first inhibited and then facilitated. Moreover, the impact of digitisation on bank performance is heterogeneous, with small and medium-sized banks, those with a high share of non-interest income and those with a high customer concentration benefiting more from digitisation.

Career concerns and earnings management in government‐owned banks

AbstractWe examine how government ownership in banks affects earnings management to determine whether competing political or agency interests prevail. Using bank ownership data for 171 Chinese commercial banks from 2006 to 2018, we find more accruals management in government‐owned banks, especially to reduce earnings. This effect is stronger in banks with less influence from controlling shareholders, more concentrated ownership structures, and in more developed provinces. Overall, our results find support for the agency view, where managers in government‐owned banks use accruals management to reduce social and political responsibilities, leading to increases in their promotion prospects.

Bank shareholder network and board governance: Evidence from Chinese commercial banks

Board governance is an important aspect of internal bank governance. We conduct an empirical study on 100 banks in China for the period from 2004 to 2017 using a time-varying growth bank shareholder network to investigate the relationship and mechanism between bank shareholder network and board governance. The bank shareholder network is found to have a positive impact on board governance. This positive effect differs across bank's service areas and ownership properties, indicating a reinforcing weakness effect. The empirical analysis shows that enhancement of network centrality can improve board governance in a bank shareholder network through three mechanisms: information sharing, reputation incentives, and effective connections. These findings provide new evidence for applying social networks in the financial services industry and identify policy implications for improving internal governance from an informal institutional perspective.

Analysis of the Impact of The Development of Internet Finance on Chinese Commercial Banks and Countermeasures

Along with the continuous progress and development of information technology, it has played an important role in promoting continuous innovation and change in various industries. Among them, Internet finance, which is supported by Internet platform and Internet technology, has been greatly developed. Internet finance, which is based on Internet information technology, not only has the advantages of Internet finance, based on Internet information technology, not only has the characteristics of rapidity and speed of the Internet, but also its ever-increasing credibility brings great challenges and threats to traditional finance. In order to gain advantages in this fierce financial market competition, finance should be brave enough to face the challenges brought by Internet finance and take active and effective measures to deal with them. This paper is based on a review of Internet finance. Based on this, this paper analyzes the operation mode of Internet finance and proposes a response to the impact of Internet finance on traditional finance using SWOT analysis. In this paper, we analyze the operation model of Internet finance and propose strategies to cope with the impact of Internet finance on traditional finance by using SWOT analysis.

Research on the influence of key audit matters on the audit quality of commercial banks-Evidence from China

Abstract In this paper, multiple linear regression model is used to predict and test the effect of audit policy changes in the capital markets. In 2016, China issued a new reporting guideline which included the addition of key audit matters (KAMs) as the core focus. It was required that all A+H-share companies should implement these in their reporting in 2017, as well as all domestic listed companies in 2018. In order to study the impact of the KAMs standard on the audit quality of Chinese commercial banks, we analysed the KAMs as disclosed by commercial banks as well as any further change in audit quality at these banks before and after implementation of the new auditing reporting standards. The results show that the disclosure of KAMs significantly promotes the improvement of loan impairment provisions in commercial banks, thus inhibiting potential earnings manipulation by management and improving the quality of financial information. The level of loan impairment provision plays an intermediary role in the improvement of bank audit quality in the new reporting standards.

How Does the Digital Transformation of Banks Improve Efficiency and Environmental, Social, and Governance Performance?

In the era of the digital economy, traditional industries have begun to realize digital transformations. For commercial banks, digital transformation is a trend and a requirement and is the only way to achieve sustainable development. At the same time, at the helm of the enterprise, executives play an essential role in the development of commercial banks. This study explored the relationship between digital bank transformation and bank efficiency, environment, society, and corporate governance (ESG) through empirical analysis, and how executives’ innovation awareness and executive technical background affect the relationships between digital bank transformation, bank efficiency, and ESG. This study used the regression method of fixed effects to conduct empirical research on the data of China’s A-share listed banks from 2011 to 2021. The research results show that the digital transformation of banks has improved efficiency and promoted the ESG performance of commercial banks. At the same time, executives’ innovation consciousness and technical background have played a positive regulatory role in banks’ digital transformation to promote bank efficiency and ESG. The main research object of this study was Chinese commercial banks. The bank’s digital transformation results were examined and the research was expanded to digital transformation and ESG. At the same time, this study has particular significance for investors who have a financial interest in banks.

Can Chinese banks expand their loan portfolio while maintaining loan quality and profitability post-global financial crisis?

PurposeThis study aims to investigate the relationships between loan growth, loan losses and net income after the 2008 global financial crisis. This study further conducts a comparative analysis by considering the period of COVID-19.Design/methodology/approachThis study uses panel data models such as one-step system GMM, random effects, fixed effects and OLS, with a data set of 131 Chinese commercial banks from 2009 to 2020.FindingsThe study finds no significant relationship between loan growth and future loan losses. However, after adjusting loan loss by net interest income (NII-adjusted loan loss), the study reveals that loan growth in the subsequent year decreases if NII-adjusted loan loss increases. The study also demonstrates the positive effect of loan growth on net income as newly expanded loans are funded at similar costs but offered at a lower rate compared with existing loans. During COVID-19, loan growth and net income were higher than in previous years.Originality/valueThe findings suggest that Chinese banks can increase lending to support the economy without sacrificing loan quality, emphasizing the importance of maintaining and enhancing credit policies and practices. Chinese banks should also continue to refine their pricing strategies for loans and deposits. The findings also imply that China's policy responses to the impact of COVID-19 could serve as lessons for future policy decisions.

COVID-19, Digital Transformation of Banks, and Operational Capabilities of Commercial Banks

The development of financial technology has promoted the innovation and digital transformation of commercial banks. Through digital transformation, commercial banks can improve bank efficiency and operational capabilities. Through empirical analysis, this study explored the relationship between digital bank transformation and commercial bank operating capabilities and how COVID-19, bank categories, and enterprise life cycles affect the relationship between digital bank transformation and commercial bank operating capabilities. This study selected data from China’s commercial banks from 2011 to 2021 and used the regression method of fixed effects to conduct an empirical analysis. The research results show that the digital transformation of banks has improved the operational capabilities of commercial banks. Further analysis showed that the emergence of COVID-19 has negatively affected their relationship. At the same time, compared with rural commercial banks and commercial banks in the recession and phase-out periods, non-rural commercial banks and commercial banks in the growth and maturity stages play a more vital moderating role in the impact of the digital transformation of banks on the financial performance of commercial banks. The main research object of this study is Chinese commercial banks, and this study examines the results of banks’ digital transformation and enriches the research on digital transformation. At the same time, this study is helpful to investors who like investment banks and has good practical significance.