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Book part
Publication date: 28 September 2020

Ekaterina Serbina

The Chinese banks have increased their market entry to Russia since their initial entry in 1993 and have expanded their banking business operations in Russia…

Abstract

The Chinese banks have increased their market entry to Russia since their initial entry in 1993 and have expanded their banking business operations in Russia significantly. The banking sector interaction between China and Russia has received great attention and interests from businesses as well as policy-makers. This chapter describes the main activities of Chinese banks in Russia, assesses their achieved results, and discusses their opportunities for further development of banking interactions of the Chinese banks and the Russian banking sector in the future.

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Emerging Market Finance: New Challenges and Opportunities
Type: Book
ISBN: 978-1-83982-058-8

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Book part
Publication date: 12 December 2007

Lei Xu and Chien-Ting Lin

China's accession to World Trade Organization (WTO) opened its financial markets to foreign banks in December 2006. In addition to foreign banks’ expertise and experience…

Abstract

China's accession to World Trade Organization (WTO) opened its financial markets to foreign banks in December 2006. In addition to foreign banks’ expertise and experience in modern banking activities, they also appear to have the interest, competitiveness, and regulatory advantages of competing with Chinese banks in the traditional Renminbi (RMB) business. Such competition will lead to a loss of RMB deposits and loans from local banks. Given that Chinese banks are currently ridden with large non-performing loans and low capital adequacy, the foreign bank entry will exert further pressure on the banks’ profitability and solvency. Without larger regular bailouts from the central government and fundamental changes on the roles of Chinese banks, China may experience a banking crisis in the post-WTO era. We propose two types of policy changes that may improve banks’ competitiveness and reduce the likelihood of a banking crisis.

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Asia-Pacific Financial Markets: Integration, Innovation and Challenges
Type: Book
ISBN: 978-0-7623-1471-3

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Article
Publication date: 15 August 2008

Coen Heijes

The purpose of this paper is to define and test a supplier selection model for Chinese and foreign banks in China.

Abstract

Purpose

The purpose of this paper is to define and test a supplier selection model for Chinese and foreign banks in China.

Design/methodology/approach

In total, 12 reasons affecting customers' choice in selecting Chinese or foreign banks are developed and their respective importance are tested through 2,000 questionnaires which were distributed over the city‐zones of Hangzhou.

Findings

Supplier performance in terms of responsiveness is of particular importance in preferring foreign banks, which are seen to have an advantage in terms of professionalism, innovation and client‐orientation. For Chinese banks only one selection reason belongs to an inherent advantage, a large and convenient network, with the other reasons deriving from government's protection and historical conditions. Surprisingly, cultural aspects such as “guanxi” or personal relationship are only of minor importance.

Research limitations/implications

Differentiates customers only by way of age and salary and focuses on the eastern urban population. Another shortcoming is the lack of extended qualitative research.

Practical implications

With the transition of the market for financial services in China customers will have increasing options to choose between Chinese and foreign banks. This paper offers valuable information regarding customer selection processes in China.

Originality/value

With most cross‐comparative research based on standard cultural dimensions, this study focuses on specific behaviour of Chinese customers in selecting services with Chinese or foreign banks, finding cross‐national differences to be less important than the characteristics of the specific market or product. This work also adds to the ongoing research agenda concerning Chinese customers' behaviour and Chinese banking.

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Chinese Management Studies, vol. 2 no. 3
Type: Research Article
ISSN: 1750-614X

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Article
Publication date: 30 April 2021

Li Chen, David Emanuel, Lina Z. Li and Mu Yang

The authors examine whether Chinese banks use loan loss provisions (LLPs) for capital management, income smoothing and signaling purposes, and assess the effect of the…

Abstract

Purpose

The authors examine whether Chinese banks use loan loss provisions (LLPs) for capital management, income smoothing and signaling purposes, and assess the effect of the recent regulatory changes following the implementation of Chinese Basel III on such behavior.

Design/methodology/approach

The authors use a unique set of hand-collected data on bank capital combined with financial data downloaded from the China Stock Market and Accounting Research (CSMAR) database. Multivariate regression models are used to test our hypotheses.

Findings

The authors find that while there is no evidence to suggest capital management practice before the Chinese Basel III, the implementation of the new regulations induced listed banks to manage tier-1 capital via LLPs. The authors also find strong support that Chinese banks engage in income smoothing via LLPs management, and there is no change in such tendency following the issuance of Chinese Basel III. Lastly, the authors do not find support for the signaling behavior by Chinese banks using LLPs.

Practical implications

The authors’ evidence suggests that elevated tier-1 capital and provisioning requirements may induce capital management by banks, which indicates a potential unintended effect brought forth by the new Basel regulations.

Originality/value

To the best of authors’ knowledge, this study is the first to examine Chinese banks' behavior relating to LLPs in terms of capital management, income smoothing and signaling. In particular, the authors use a sample containing a large number of Chinese commercial banks – previously a major data issue in other studies.

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Journal of Accounting in Emerging Economies, vol. 11 no. 4
Type: Research Article
ISSN: 2042-1168

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Book part
Publication date: 27 September 2011

Yuhua Li and Konari Uchida

Purpose – Investigate the causes and consequences of foreign financial institutions' divestments in China's banking sector which is an example of cross-border transactions…

Abstract

Purpose – Investigate the causes and consequences of foreign financial institutions' divestments in China's banking sector which is an example of cross-border transactions by institutional investors.

Methodology – Use a sample of 26 foreign financial institutions' strategic investments in Chinese banks. Ten of those investments are divested after the global financial crisis. We investigate determinants of the divestment, business cooperation after the divestment, and Chinese banks' stock price reactions to the divestment announcement.

Findings – The poor performance of foreign financial institutions, which is attributable to the global financial crisis, and the institutions' regulated low equity ownership are important causes of divestment (or whole divestment). In contrast, Chinese banks' poor performance does not cause foreign divestments. Foreign financial institutions that fully divest their equity stakes usually terminate their cooperative business, which was required by the strategic investment agreement. The Bank of China and the China Construction Bank, which experienced large H-share divestments, experienced large economic declines in A-share values.

Social implications – Foreign financial institutions' strategic investments created substantial shareholder value before the divestment. Banking sector developments that rely on foreign investments are vulnerable to economic downturns in developed countries.

Originality/value of paper – To the best of our knowledge, this is the first trial to analyze the impact of divestments on divested bank performance.

Details

Institutional Investors in Global Capital Markets
Type: Book
ISBN: 978-1-78052-243-2

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Article
Publication date: 29 November 2018

Thanh Pham Thien Nguyen

Given some similarities in the banking industry and economic condition across Vietnam, China and India, the purpose of this paper is to estimate and compare the cost and…

Abstract

Purpose

Given some similarities in the banking industry and economic condition across Vietnam, China and India, the purpose of this paper is to estimate and compare the cost and revenue efficiency of banks across these three countries over the period 1995–2011.

Design/methodology/approach

This study employs the meta-frontier of Battese et al. (2004) and O’Donnell et al. (2008) which envelops the three country-frontiers to measure the cost and revenue efficiency of banks in these three countries.

Findings

This study finds that Chinese banks adopt the most advanced cost-reducing and revenue-increasing technology when providing banking products to their customers, followed by Indian banks. Indian banks are as cost-efficient as Chinese banks, but more cost-efficient than Vietnamese banks. Indian banks are as revenue-efficient as Vietnamese banks, but less revenue-efficient than Chinese banks. Over the analysis period, banks in the three countries have employed the more advanced technology in reducing costs, and they have become more cost-efficient. Nonetheless, for revenue side, the improvement in revenue efficiency and adopted technology are observed only in Chinese banks. The main source of meta-cost and meta-revenue inefficiency of these banking systems stems from undertaking inferior technology rather than managerial ability. Results from comparison across bank types show that state-owned banks (SOBs) are more cost and revenue-efficient than privately owned banks, with Indian and Chinese SOBs being the most cost- and revenue-efficient, respectively.

Practical implications

To improve meta-cost efficiency, Chinese and Indian banks would constitute a relevant benchmark for Vietnamese banks, while to improve meta-revenue efficiency, Chinese banks would be considered as a relevant benchmark for Vietnamese and Indian banks.

Originality/value

This is the first study which utilizes meta-frontier to compare cost and revenue efficiency and technology across banks in Vietnam, China and India.

Details

Benchmarking: An International Journal, vol. 25 no. 9
Type: Research Article
ISSN: 1463-5771

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Article
Publication date: 13 February 2017

Yong Tan, Christos Floros and John Anchor

This study aims to test the impacts of risk-taking behaviour, competition and cost efficiency on bank profitability in China.

Abstract

Purpose

This study aims to test the impacts of risk-taking behaviour, competition and cost efficiency on bank profitability in China.

Design/methodology/approach

A two-step generalized method of moments system estimator is used to examine the impacts of risk, competition and cost efficiency on profitability of a sample of Chinese commercial banks over the period 2003-2013.

Findings

The paper finds that credit risk, liquidity risk, capital risk, security risk and insolvency risk significantly influence the profitability of Chinese commercial banks. To be more specific, credit risk is significantly and negatively related to bank profitability; liquidity risk is significantly and positively related to return on assets (ROA) and net interest margin (NIM) but negatively related to return on equity (ROE); capital risk has a significant and negative impact on ROA and NIM but a positive impact on ROE; there is a significant and negative impact of security risk on bank profitability (ROA and NIM). It is found that Chinese commercial banks with higher levels of insolvency risk have higher profitability (ROA and ROE). Finally, higher competition leads to lower profitability in the Chinese banking industry, and Chinese commercial banks with higher levels of cost efficiency have lower ROA. In other words, the structure–conduct–performance paradigm rather than the efficient–structure paradigm holds in the Chinese banking industry.

Originality/value

This is the first paper to investigate the impact of different types of risk, including credit risk, liquidity risk, capital risk, security risk and insolvency risk, on bank profitability. This is the first study which uses more accurate measurements of efficiency and competition compared to previous Chinese banking profitability literature and which tests their impact on bank profitability. The findings not only provide a general picture on the risk, efficiency and competition conditions in the Chinese banking industry, but also give valuable information to the Chinese Government and to the banking regulatory authorities to make relevant policies.

Details

Review of Accounting and Finance, vol. 16 no. 1
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 5 June 2017

Yong Tan and John Anchor

The purpose of this paper is to investigate the impact of competition on credit risk, liquidity risk, capital risk and insolvency risk in the Chinese banking industry…

Abstract

Purpose

The purpose of this paper is to investigate the impact of competition on credit risk, liquidity risk, capital risk and insolvency risk in the Chinese banking industry during the period 2003-2013.

Design/methodology/approach

This study uses a generalized method of moments system estimator to examine the impact of competition on risk. In particular, translog specifications are used to measure the competition and insolvency risk.

Findings

The results show that greater competition within each bank ownership type (state-owned commercial banks, joint-stock commercial banks and city commercial banks) leads to higher credit risk, higher liquidity risk, higher capital risk, but lower insolvency risk.

Originality/value

This paper is the first piece of research testing the impact of competition on different types of risk in banking industry and it further contributes to the empirical literature by using a more accurate competition indicator (efficiency-adjusted Lerner index) and a more precise insolvency risk indicator (stability inefficiency).

Details

International Journal of Managerial Finance, vol. 13 no. 3
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 15 August 2016

Thanh Nguyen

The purpose of this paper is to examine the effects of China’s accession to the World Trade Organization (WTO) in January 2002 on the efficiency levels, efficiency…

Abstract

Purpose

The purpose of this paper is to examine the effects of China’s accession to the World Trade Organization (WTO) in January 2002 on the efficiency levels, efficiency components (technological change and scale economy), and efficiency determinants of Chinese banks.

Design/methodology/approach

This study employs a two-stage stochastic frontier analysis to estimate efficiency and its components and identify the efficiency determinants.

Findings

Chinese banks did not benefit from technological change and scale expansion in reducing costs in the pre-WTO period, but the reverse occurred in the post-WTO period. Chinese banks benefited from technological change in increasing profits to a lower degree in the post than the pre-WTO period. Cost efficiency declined while profit efficiency improved after China’s accession. Security investments positively drove profit efficiency in both pre- and post-WTO periods. There was an efficiency gap between joint-stock banks and state-owned banks in the pre-WTO period, but this gap disappeared in the post-WTO period. Economic freedom was related negatively to cost efficiency and positively to profit efficiency in the pre-WTO period, but opposite relations occurred in the post-WTO period.

Practical implications

These findings appear to favour gradual liberalisation in the Chinese banking system, gradual removal of restrictions on foreign banks, certain shift from non-security investments to security investments, technology investment and scale expansion.

Originality/value

This is the first study investigating the impact of the WTO on the efficiency, technological progress, economy of scale and efficiency determinants in Chinese banks.

Details

China Finance Review International, vol. 6 no. 3
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 10 October 2016

Thanh Pham Thien Nguyen and Son Hong Nghiem

The purpose of this paper is to examine the operational efficiency and effects of market concentration and diversification on the efficiency of Chinese and Indian banks in…

Abstract

Purpose

The purpose of this paper is to examine the operational efficiency and effects of market concentration and diversification on the efficiency of Chinese and Indian banks in the 1997-2011 period.

Design/methodology/approach

This study employs the two-stage bootstrap procedure of Simar and Wilson (2007) to obtain valid inferences on the efficiency scores and the efficiency determinants.

Findings

Using data set for each country separately, the authors found that the bias-corrected cost efficiency displays an upward trend in Chinese and Indian banks. This trend is consistent with profit efficiency among Chinese banks, but the trend is unclear in Indian banks. Market concentration is negatively related to cost and profit efficiencies of Chinese banks. However, market concentration is positively associated with cost efficiency, but unrelated to profit efficiency of Indian banks. In Chinese banks, diversification of revenue, earning assets and non-lending earning assets are associated with increasing profit efficiency, but their effects to cost efficiency are not clear. In Indian banks, diversification of earning assets increases profit efficiency while there are cost efficiency losses from diversification of revenue and earning assets.

Practical implications

Bank regulators and supervisors in China should consider establishing policies to reduce market concentration and encourage diversification of revenue, earning assets and non-lending earning assets, while increasing concentration and diversification of earning assets should be encouraged in Indian banks.

Originality/value

To the best of the authors’ knowledge, this is the first study employing the double bootstrap procedure proposed by Simar and Wilson (2007) which can address the problem of the two-stage data envelopment analysis or SFA estimator in the efficiency literature on Chinese and Indian banks that efficiency scores obtained in the first stage are inter-dependent, and hence violating the basic assumption in regression analysis in the second stage.

Details

Managerial Finance, vol. 42 no. 10
Type: Research Article
ISSN: 0307-4358

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