The growth, determinants, and profitability of nontraditional activities of Chinese commercial banks

Michael Arthur FIRTH, Wei LI, Shuye, Steven WANG

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

6 Citations (Scopus)

Abstract

Using a panel data set for China's commercial banks between 1998 and 2007, we investigate the relation between a bank's nontraditional income ratio and its operational and financial characteristics after controlling for ownership type, government policy changes, and cross-regional institutional environment differences. We find that banks with narrow net interest margins have stronger incentives to develop nontraditional activities. Moreover, banks located in regions with less local government intervention have fewer nontraditional banking activities. We find evidence that the ownership type of the bank has some influence on the pursuit of nontraditional activities. Nontraditional income has not led to improved bank profitability and we present some conjectures on why this is so. In contrast to the results reported in prior research, we find that the financial performance of the big-four state-owned banks is not inferior to the performance of other banks.
Original languageEnglish
Pages (from-to)259-287
Number of pages29
JournalThe European Journal of Finance
Volume22
Issue number4-6
DOIs
Publication statusPublished - 1 Jan 2016

Fingerprint

Profitability
Nontraditional
Commercial banks
Ownership
Income
Financial performance
Bank profitability
Policy change
Incentives
Banking
Interest margin
State-owned banks
Government intervention
Government policy
Institutional environment
Panel data
Local government
China

Keywords

  • banks
  • institutional environment
  • nontraditional business
  • ownership

Cite this

FIRTH, Michael Arthur ; LI, Wei ; WANG, Shuye, Steven. / The growth, determinants, and profitability of nontraditional activities of Chinese commercial banks. In: The European Journal of Finance. 2016 ; Vol. 22, No. 4-6. pp. 259-287.
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The growth, determinants, and profitability of nontraditional activities of Chinese commercial banks. / FIRTH, Michael Arthur; LI, Wei; WANG, Shuye, Steven.

In: The European Journal of Finance, Vol. 22, No. 4-6, 01.01.2016, p. 259-287.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AB - Using a panel data set for China's commercial banks between 1998 and 2007, we investigate the relation between a bank's nontraditional income ratio and its operational and financial characteristics after controlling for ownership type, government policy changes, and cross-regional institutional environment differences. We find that banks with narrow net interest margins have stronger incentives to develop nontraditional activities. Moreover, banks located in regions with less local government intervention have fewer nontraditional banking activities. We find evidence that the ownership type of the bank has some influence on the pursuit of nontraditional activities. Nontraditional income has not led to improved bank profitability and we present some conjectures on why this is so. In contrast to the results reported in prior research, we find that the financial performance of the big-four state-owned banks is not inferior to the performance of other banks.

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