The Big Five banks in China (Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications) control around 40% of system assets. So, if they’re not doing a good j0b it follows the system isn’t operating efficiently.
Writing in a BOFIT (Bank of Finland Institute for Economies in Transition) Discussion Paper Zuzana Fungáčová, Paul Olivier Klein and Laurent Weill highlight inefficiency at the big-5 that has already been turned over in previous research. They go further though to try and dis-aggregate ‘persistent’ and ‘transient’ problems. The paper is a useful reminder of industry structure and concludes the big banks are no less or more poor operators than smaller peers when it comes to transient problems. The big difference is the effect of persistent issues and here they suffer more than the system as a whole.
The researchers stop short of recommending specific fixes concluding only further reform would be a good thing and ‘Such reforms will likely include further privatization, changes in the governance structures and reductions in state support.’
As an investor in the space and long-time booster this is a reassuring assessment. There remains plenty of scope for value-enhancing improvement! You can access the work in full via the following link Explaining the Low Efficiency of Chinese Big Banks.
Happy Sunday.