Empirical studies in China’s bank industry in post-reform period

The Chinese banking sector has experienced significant reform since 2003. The main purpose of the reform was to improve corporate governance structures, improve risk management and enhance performance. The lack of comprehensive research on performance determinants in the Chinese banking sector is the main motive, therefore the thesis investigates the determinants of bank profitability and efficiency in the second chapter. This thesis focuses on significant changes in the Chinese banking sector in two areas: the new regulation Governing Capital Adequacy of Commercial banks and the Guidelines on Corporate Social Responsibility (CSR). Both regulatory reforms implemented by the Chinese government in the early 2000s aim to improve corporate governance, enhance banking risk management and achieve long-term sustainable development. However, while most previous research studies have focused on the impact of capital on banking risk and efficiency, as well as the relationship between CSR and bank financial performance in developed markets, the lack of research into the Chinese banking sector is a gap that this thesis aims to fill.
This study contains three parts. Firstly, using the panel data of Chinese banks from 2004 to 2018, this study contributes to the investigation of bank performance in China and explores the determinants that influenced Chinese banks’ profitability and efficiency. Second, the thesis aims to examine the relationship between capital, risk and efficiency in the Chinese banking industry. Thirdly, the study investigates the relationship between adopting CSR and bank financial performance. A content analysis is adopted to measure the level of CSR for commercial banks. Different estimation methods are applied to examine the relationship.
The findings show that credit risk is significantly and positively contributed to the NIM and Cost-efficiency, while liquidity risk makes a convincingly positive contribution to both the NIM and Cost-efficiency. Moreover, banks with a higher capital adequacy tended to exhibit higher levels of profitability. Non-interest income has a negative impact on all three performance measures. There is a bidirectional negative relationship between capitalisation and banking risk. The higher level of bank cost-efficiency appears to hold less capital. In addition, large banks tend to take less risks than smaller banks. Furthermore, the results show that banks engaging in CSR activities could increase their financial profits.