Finance 3000 2day Essay Example | Topics and Well Written Essays - 3000 words

Finance 3000 2day - Essay Example Market average input prices were accordingly used to determine cost and give tangible results when used in SFA. Data Presentation The figure showing changes of profit efficiency of the Chinese banking industry This figure underscores the effect of penetration of foreign banks on Chinese domestic banks. During the initial stage of market penetration, domestic banks drop or stagnant in terms of profit efficiency. This is occasioned by the need to increase investment in technology and efficient systems in order to stay competitive. These measures drive the cost upwards resulting in decreased profit margin. The trend changes to that of growth after the necessary technology and efficient systems are in place. The exponential growth face exceeds the negative impact occasioned and this in general increases profit efficiency and by extension the efficiency of the domestic banks. These results indicate that City commercial banks are the most profit efficient whilst state-owned banks being the least in terms of profit efficiency. This is a deviation from the fact that state-owned banks (SOCBs) tend to be more cost effective. The reason for this is that SOCBs tend to have higher Non-performing loans (NPLs) than City commercial banks (CCBs). ... to measure efficiency of banks from a different perspective and the following figures depict the mean technical efficiency in the Chinese banking sector by bank type: A. B. Model A is an experiment on profitability or income generation while model B examines the efficiency of earning asset production and growth. A quick comparison of these two models shows that within the first five years model B reached an efficiency at a faster pace than model A. This is an indication that banks here were more poised on asset building rather than profitability. In the year 2000 the graphs are flat indicating diminished growth occasioned by the banks being more profit conscious instead of first pursuing asset growth. Further interpretation of the data in model A shows that JSCBs are more efficient and better performers than all the other banks. This could be attributed to the fact that JSCBs are more autonomous and free of direct intervention by the Chinese government. JSCBs are also not faced with numerous challenges of NPLs like SOCBs. CCBs have a poor showing indicating bias or small sample size of these types of banks while researching. Chen et al (2005) findings are proven in model B whereby SOCBs outperform JSCBs in efficiency. This, however, is in direct contravention of known literature depicting the relationship between the government and the banking industry. A possible answer could be that the vast amount of state funds poured into SOCBs for their growth is having an impact and the banks are gaining stability. These two models of income based and asset based are another way to measure the impact that foreign banks have had on the efficiency of the Chinese domestic banking industry. A clearer picture is painted by including other parameters. Discussion For a very long time