RESEARCH ON THE IMPACT OF CHINESE COMMERCIAL BANK'S CAPITAL STRUCTURE ON PROFITABILITY

RESEARCH ON THE IMPACT OF CHINESE COMMERCIAL BANK'S CAPITAL STRUCTURE ON PROFITABILITY

Bingbing Shen

Graduate Student Novosibirsk State University,

Russia, Novosibirsk

 

ABSTRACT

Since the 21st century, the financial system has increasingly become the lifeblood of the economies of all countries. A stable and efficient financial system plays an important role in a country’s economic growth and social stability. At present, China's financial system is still dominated by indirect financing, and commercial banks play a very important role in China's financial system. Therefore, the stable development of commercial banks is of great significance in the current economic environment of China. In most studies on corporate capital structure, commercial banks are often excluded, mainly due to the particularity of the capital structure of commercial banks. The capital of a commercial bank refers to the funds that the commercial bank owns or can permanently use. Commercial banks’ capital accounts for a very small proportion of their assets, which is much lower than the proportion of general industrial and commercial enterprises’ own capital in total assets. The extent of the impact of the special capital structure of commercial banks on its profitability, and whether there is a difference between its influence path and ordinary enterprises are all issues worthy of study. This article analyzes the data of 16 Chinese commercial banks in 20 quarters from the first quarter of 2014 to the fourth quarter of 2018. This article uses the panel data model and R-Studio for regression analysis. This article attempts to study the correlation between the capital structure and profitability of commercial banks, and provides theoretical reference and basis for the optimization of commercial banks' capital structure and the improvement of profitability.

 

Keywords: Commercial Bank, Profitability, Regression Analysis.

 

1. Introduction

Under the negative impact of a series of global economic crises and the current novel coronavirus, countries are committed to improving the stability of their economic systems. In this sense, it is very important for China to establish a banking system that can contribute to economic development. Since the reform and opening up, the development of Chinese commercial banks has achieved development, but the state plays a key role in directed lending. Many reforms on the privatization of commercial banks have not yet been completed and its system is not transparent from the point of view of the transfer of funds from state to private banks. The Chinese banking system has its own characteristics, it is influenced by the government. It consists in the desire to use commercial banks to solve state problems: financing promising enterprises and projects from the point of view of the Chinese society, in controlling monetary and foreign exchange transactions. The Chinese government is using the banking system to carry out economic reforms, especially in creating an efficient financial market. Banks are gradually creating the basis of a new type of banking system, which is dominated by market mechanisms. In China, the banking sector is highly segmented. It highlights systemic banks, which, together with the government, implement financing of large national economic and international projects. Another component is private banks operating on the basis of the rules and principles of the capitalist market. These banks are gradually creating the basis of a new type of banking system, in which market mechanisms prevail. In addition to private banks, urban, rural and other banks that perform banking functions, but pay attention to helping clients in development, including through numerous government support programs. Another feature is functioning in the process of reforms. This implies a certain partnership between the banking system and the state. It is realized through careful control over the work of banks and intervention at the moment when assistance to banks or their participation is needed. This intervention can be both market and non-market in nature, its need is associated with the solution of the problem.

With the integration of the world economy and the globalization of the financial industry, the Chinese economy has become more in line with the world economy and more vulnerable to changes in the world economy, especially the impact of the financial crisis. China's banking industry started late and its business development is not perfect. Various systems in the banking industry still need continuous improvement. By analyzing and adjusting the bank’s capital structure, capital losses can be determined in time, thereby stabilizing the financial market. Chinese commercial banks are affected by the international and domestic markets. During the economic transition period, the social environment is more complex and changeable, with increased risk pressure and reduced profitability. The constraints of domestic regulatory policies, the rapid development of Internet financing platforms, and the increasing demands of residents on the services provided by banks have increased the pressure on banks to survive.

The impact of the capital structure of commercial banks on operating performance is not the same as the impact of general corporate capital structure on operating performance. The profitability of a commercial bank is mainly affected by the amount of its own funds. If a commercial bank holds more funds, it can extend more loans to those who need funds, and it will also increase its own profitability. Studying the capital structure of Chinese commercial banks and its impact on profitability is conducive to improving the capital structure of Chinese commercial banks, strengthening the awareness of capital constraints, and improving the operating performance of Chinese commercial banks. Therefore, for banks to develop in an increasingly severe environment, they must optimize their own capital structure and improve operating performance. This is not only related to the development of the bank itself, but also related to the financial security and economic stability of the entire country, which is of great practical significance.

2. Literature Review

Pursuing the maximization of operating performance is one of the most important goals of an enterprise, and commercial banks are no exception. However, as a highly leveraged enterprise, the influencing factors and mechanism of capital structure on operating performance are different from those of ordinary enterprises. In recent decades, the banking industry in various countries has developed rapidly, and profit issues have inspired many scholars to study the relationship between the capital structure of commercial banks and their operating performance. Research results have also been achieved. The result is that the capital structure of commercial banks has an impact on operating performance. Significantly affected. However, from the existing related literature, due to the difference between the time period of the research and the selected samples, there has not yet been a consistent conclusion on the mechanism of the impact of the capital structure on the bank’s operating performance. The research needs to be further in-depth. This article will take this issue more deeply. Research, this is also the theoretical significance of this article.

Among commercial banks, some commercial banks finance through public issuance of shares, while others finance through investments among members. For the capital composition of different commercial banks, Allen N. Berger and David B. Humphrey conducted a research, and the results showed that the operating performance of the two commercial banks is basically the same [1, p.175].

S. Titman and R. Wessels used the relevant data of 469 companies in the United States from 1974 to 1982 to examine the factors affecting the capital structure. The profitability of commercial banks has a negative correlation with the capital structure of commercial banks [1, p.1].

Andrei Shleifer collected data from 958 listed commercial banks in 78 countries around the world, and found that: among commercial banks, there is no significant relationship between the national shareholding ratio and the business performance of commercial banks [2, p.2].

Zhou Wending used the data of 4 state-owned commercial banks in China and 4 listed joint-stock commercial banks to compare, and believed that the impact of the capital structure of Chinese commercial banks on the profitability of banks is mainly realized through the governance structure [3, p.33]. That is, the capital structure affects the governance structure, and the governance structure directly affects profitability.

G. Caprio conducted a research on the corporate governance mechanism and ownership structure of commercial banks. This research included sample data from 44 countries. They classified the different types of shareholders of commercial banks, and the results showed that different types of shareholders have different effects on the operating performance of commercial banks [4, p.3].

Monica Octavia used a sample of 56 publicly listed commercial banks from ten developing countries to explore the influencing factors of the capital structure of commercial banks. The study found that the return on bank assets was negatively correlated with the capital structure expressed by the bank’s book leverage [5, p.15].

M. R. King and E. Santor used more than 600 family businesses in Canada from 1998 to 2005 as the research object. The results of the study show that there is a positive correlation between capital structure and profitability [6, p. 2423].

Khalaf Taani studied the impact of capital structure on the performance of Jordanian banks. The research is based on the financial data of 12 commercial banks listed on the Amman Exchange from 2007 to 2011. Research shows that the bank performance measured by ROA and ROE indicators has a significant positive correlation with the capital structure [7, p. 227].

Ma Jin used the panel data of 14 listed commercial banks in China from 2004 to 2011 to analyze the relationship between bank capital structure and bank profitability, and concluded that leverage ratio, equity concentration, and the nature of the largest shareholder Profitability has a relatively obvious impact. The capital adequacy ratio has little effect on the profitability of commercial banks, while liquidity and asset scale have a certain impact on profitability [8, p.7].

R. Troplini pointed out through empirical analysis that from 2006 to 2011, Albanian banks experienced a low level of return on assets, and the bank's net income on assets also tended to decline. Its research shows that there is no conclusion that ROA and LA have an impact on bank performance; and that loan deposits and deposit assets show a strong correlation with bank performance. In fact, there is a negative correlation between Albanian bank leverage and market performance as measured by Tobin's Q [9, p.7].

Nourani, Ting, Lu and Kwen analyzed the relationship between the capital structure and operating performance of the banks in the five ASEAN countries by using a data envelopment analysis (DEA) model and using data from 2007 to 2013. DEA results show that banks in Malaysia outperform those in Singapore, Thailand, Indonesia and the Philippines. Forecasts through the DEA frontier indicate that the underutilized long-term assets of banks in the five ASEAN countries have led to inefficiency. In addition, the study also found that the capital structure as a whole is positively correlated with bank performance [10, p.107].

Dong Ding and Robin C. Sickles provide an understanding of the SFA method as a performance measurement tool, in particular, using a large number of Bank of America data from 2001 to 2016 to evaluate the relationship between company performance and capital allocation. This research explains the endogenous nature of risk and capital decision-making in enterprise production, as well as the important impact on banks [11, p. 2].

Zhang Qiang established an empirical regression by establishing a dynamic model of the capital structure adjustment of joint-stock banks, and concluded that the profitability of banks has a negative impact on the capital structure, and the tax impact and inflation rate are negligible [12, p.43].

Yang Yang [21] uses 14 listed commercial banks in China as research objects to conduct empirical analysis. The empirical results show that the bank’s after-tax profit is positively correlated with the bank’s debt ratio [13, p.43].

Jerimieus S Sinaga and Iskandar Muda studied the influencing factors of Bank Indonesia’s financial leverage ratio, including exchange rates, inflation, and the Central Bank of Indonesia (BI) interest rate. Studies have shown that the central bank of Indonesia (BI) interest rates and third-party funds (DPK) have a significant impact on the financial leverage ratio of banks to a certain extent, while exchange rates and inflation have little effect on the financial leverage ratio of commercial banks [14, p.55].

Yizhe Dong and Michael Firth studied the cost and profit efficiency of Chinese commercial banks from 2002 to 2013. Research shows that the cost and profit efficiency of all types of Chinese domestic banks have improved. Bank ownership structure, bank scale and listing status are the main factors affecting the efficiency of Chinese banks [15, p.280].

Peterson Kitakogelu Ozili and Olayinka Uadiale studied whether ownership concentration affects the profitability of banks in developing countries. The study concluded that banks with a high degree of ownership have higher return on assets, higher net interest rates, and higher recurring profitability [16, p.159].

Tu DQ. Le and Thanh Ngo studied the determinants of bank profitability in 23 countries and regions from 2002 to 2016. The survey results show that the number of bank cards issued, the number of automated teller machines (ATM) and the number of point-of-sale (POS) terminals can increase the profitability of banks. In addition, there is a positive correlation between capital market development and bank profitability [17, p.65].

Elmira Partovi and Roman Matousek analyzed the technical efficiency of Turkish banks from 2002 to 2017. Studies have shown that: non-performing loans have a negative impact on the technical efficiency of banks. In addition, the efficiency level of Turkish banks depends on the difference in bank capital structure [18, p.287].

3. Methodology

(1) Variable Description and Assumptions

The term "efficiency analysis" in bank capital structure analysis is understood as the change in bank structure when the return on assets and capital gain indicators affects it. In this case, the key is that different sources of capital are associated with different profitability requirements. Conversely, where the bank places assets favorably, it can also afford expensive resources-limited to cheap resources. In order to have growth prospects, banks must be able to attract as much capital as possible.

Regression analysis will show the relationship between the rate of return and capital structure. This article uses the following variables: the ratio of total debt to total equity (DE), the ratio of total debt to total assets as independent variables, and the dependent variables are return on equity (ROE), return on assets (ROA), and net profit margin (NP) And net interest margin (NIM). The following hypotheses were proposed for this research:

H1: The ratio of total debt to total equity has a significant impact on the NP indicator.

H2: The ratio of total debt to total equity has a significant impact on the ROA indicator.

H3: The ratio of total debt to total equity has a significant impact on the ROE indicator.

H4: The ratio of total debt to total equity has a significant impact on NIM indicators.

H5: The ratio of total debt to total assets has a significant impact on the NP indicator.

H6: The ratio of total debt to total assets has a significant impact on ROA indicators.

H7: The ratio of total debt to total assets has a significant impact on the ROE indicator.

H8: The ratio of total debt to total assets has a significant impact on NIM indicators.

In order to better study the factors affecting the profitability of Chinese commercial banks, including bank capital structure, we conduct regression analysis.

Regression analysis of the profitability of Chinese commercial banks.

H9: The profitability of Chinese commercial banks is entirely determined by regulatory capital requirements and has nothing to do with the determinants of bank profitability.

H10: Banking determinants (including bank capital structure) and macroeconomic factors have significant explanatory power for banks' profitability.

Regression analysis dependent variable:

ROA (Return on Assets) evaluates the ability of bank managers to manage bank resources and characterizes the success of a bank as an organization. ROE (Return on Equity) allows investors to assess how effectively a company is using its equity capital.

Regression analysis independent variable:

Total assets: Total assets are a measure of the size of a commercial bank's business. To a certain extent, the scale of a bank's business may reflect its capital potential and performance.

Leverage Ratio: Leverage Ratio usually refers to the ratio of total assets to equity in the balance sheet. A high leverage ratio means that financial institutions can get a higher rate of return on capital during an economic boom, but when the market reverses, they run the risk of a sharp drop in their profitability.

Collateral: A bank's ability to guarantee assets depends on many factors, but ultimately depends on the number of tangible assets of the bank. The higher the number, the higher the guaranteed value of customer deposits.

Dividends: Dividends are profiting that shareholders regularly receive from public banks on the exchange at a certain rate.

The ratio of the share price on the stock exchange to the book value: Price-to-Book Ratio refers to the ratio of a share's price per share to net assets per share. The ratio of price to book value can be used to analyze investments in bank shares. In general, shares with a lower price to book value ratio have a higher investment value.

Tier 1 Capital Ratio: The capital adequacy ratio measures the risk management capabilities of commercial banks and reflects the ability of commercial banks to incur losses at the expense of equity capital.

GDP: GDP is often considered the best indicator of a country's economic position. GDP.An important comprehensive statistic in the accounting system that reflects the economic strength and market size of a country (or region).

Inflation, GDP deflator (annual percentage): Inflation refers to the phenomenon where the actual demand for money is less than the supply of money in terms of money circulation. In this article, the GDP deflator (annual percentage) is used to express the inflation rate.

SSE Stock Index Returns: The SSE Composite Index is one of the leading indices of the Shanghai Stock Exchange (SSE). It includes 1,075 A and B listed companies. Unlike most world indices calculated by the Laspeyres method (taking into account the change in the value of the index in comparison with the past time), the SSE Composite is calculated according to the Paasche principle. The base period is one day, the quote is affected by the rise or fall in the price of the traded shares, which make up the capitalization.

Table 1.

Determinants for samples from commercial banks in China

	Indicators for samples from commercial banks in China	Determinants
Internal bank determinants	Total Assets (in thousands of US dollars)	TotalAssets
	Leverage ratio	Lev
	Collateral	Coll
	Dividends	Div
	Market-to-book value	MB
	Capital adequacy ratio	Tier1Ratio
External macro determinants of banks	GDP	GDP
	Deflator	deflator
	Stock market return	Mreturn

 

(2) Model

The research uses return on equity (ROE), return on assets (ROA), net profit margin (NP) and net interest margin (NIM) as dependent variables of return on equity to measure bank profitability.

The independent variables in this study are the ratio of total debt to total equity (DE), and the ratio of total debt to total assets. Four regression models were developed to test the capital structure and bank profitability. The general model of this research is:

                                                                                                    (1)

This shows that performance is a function of capital structure.

P = efficiency, CS = capital structure.

Four indicators are used to measure profitability, namely return on equity (ROE), return on assets (ROA), net profit margin (NP) and net interest margin (NIM). The capital structure is expressed by the ratio of total debt to total equity (DE) and the ratio of total debt to total assets (DA). Therefore, the regression model will be represented by the following equation:

Model 1

                                                                                       (2)

                                                                                       (3)

Model 2

                                                                                     (4)

                                                                                    (5)

Model 3

                                                                                    (6)

                                                                                   (7)

Model 4

                                                                                  (8)

                                                                                 (9)

where:

X1-Debt/Equity ratio, X2-Debt to Total assets ratio, NP-Net Profit, β0-Constant, NIM-Net Interest Margin.

Using regression analysis, we estimated the impact on profitability of classical banking determinants (asset size, leverage, market-to-book value, collateral, capital adequacy ratio, and macroeconomic parameters, including GDP, inflation, and stock market index return). The dependent variables of the model were ROA and ROE.

Model 5

(10)

Model 6

(10)

(3) Data

For the analysis, statistical methods are used based on data from the Shanghai Stock Exchange and the Shenzhen Stock Exchange for 16 joint-stock banks for the period 2014-2018.

MarketWatch is a wholly-owned subsidiary of Dow Jones and the world's leading provider of financial information and investment data. It closely combines leading new media technology and timely market reports. This article first selects 21 Chinese commercial banks based on MarketWatch website data. Taking into account the development history of China's banking industry, many banks in China did not really make profit at the beginning and did not have the characteristics of commercial banks in developed countries. Therefore, joint-stock commercial banks listed on the Chinese stock market were selected as the research objects. Based on the data from the MarketWatch website, this paper eliminates 5 commercial banks that are difficult to obtain complete financial statement data, and finally determines a total of 16 listed commercial banks in China (Table 2). This article takes 15 listed banks listed on the Shanghai Stock Exchange of China and the most representative Ping An Bank listed on the Shenzhen Stock Exchange as the research objects. Considering the comprehensiveness and availability of data and the accuracy of the research, this paper selects 8 national joint-stock commercial banks including 5 large state-owned commercial banks with a high proportion of state-owned shares, Minsheng Bank and other 8 national joint-stock commercial banks, Bank of Beijing, Bank of Nanjing, Bank of Ningbo Three city commercial banks are the research samples, and the required data are obtained from Оrbis and other databases and the annual reports of each bank. According to public data from the China Banking and Insurance Regulatory Commission (CBIRC), the growth rate of net profit of Chinese commercial banks from 2011 to 2019 was 36.3%, 19%, 14.5%, 12.1%, 10.5%, 4%, 6%, 4.7% and 8.9%, it can be seen that the profits of China's commercial banks have declined from 2011 to 2019, and the growth rate of net profit has increased in 2019. It is difficult to obtain some bank data from 2011 to 2013. In order to better study the relationship between the decline in bank profitability and capital structure, this paper selects data from the 20 quarters from 2014 to 2018.

Table 2.

Sample 16 Chinese commercial banks

 

As part of the regression analysis, this article also analyzes factors related to profitability, including capital structure. Data source: All bank financial report data comes from the Orbis report website, which is one of the world's largest sources of comparable data for private companies and other organizations. The data is taken from 2011-2019. The sample only includes banks classified as commercial banks or savings banks under the North American Industry Classification System. Due to lack of data, several banks were excluded, so the final sample included 57 Chinese banks. The study used the R-Studio programming language to analyze data from 57 Chinese banks from 2011 to 2019. In addition to this information, a lot of macroeconomic data has also been collected. The World Bank Database (IBRD) provides information on China's historical real GDP growth.

(4) Results and Discussion

Due to the large differences in the scale of Chinese commercial banks, Model 1 was rejected. The asset scales of the banks used for analysis vary greatly, and the profits vary greatly. Because of the accuracy of parameter estimation, Model 4 was rejected.

This article analyzes models 2 and 3 (Table 3).

Table 3.

Descriptive statistics summary

Data source: Balance sheets of 16 Chinese commercial banks

Table 4.

Hypothesis testing

 

In order to verify Hypothesis 9 and Hypothesis 10, this article conducts regression analysis on factors related to profitability, including capital structure. The regression analysis results are as follows:

Table 5.

Regression analysis results of Chinese commercial banks (dependent variable is ROA)

	Estimate	Std. Error	t value	Pr(>|t|)	Signif.
(Intercept)	4.91E-01	5.34E-02	9.199	<2e-16	***
lnTotalAssets	3.19E-04	1.58E-04	2.018	0.04493	*
Lev	-7.28E-02	2.89E-02	-2.521	0.01249	*
MB	-2.38E-04	7.51E-05	-3.165	0.00179	**
Coll	3.81E-03	2.74E-03	1.391	0.16588
Tier1	5.21E-04	1.78E-04	2.932	0.00376	**
log (GDP)	-1.41E-02	1.25E-03	-11.291	<2e-16	***
Inflation	-3.04E-04	1.19E-04	-2.565	0.01106	*
Mreturn	-5.33E-03	9.97E-03	-0.535	0.593
Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Residual standard error: 0.002358 on 201 degrees of freedom
Multiple R-squared: 0.525, Adjusted R-squared: 0.5061
F-statistic: 27.77 on 8 and 201 DF, p-value: < 2.2e-16

Data source: Balance sheets of 57 Chinese banks R-Studio

 

It can be seen from the regression results that the value of R-squared is 0.525, and the value of Adjusted R-squared is 0.5061, indicating that the regression model fits the sample observations well. The F-statistic value is 27.77, and the p-value is less than 2.2e-16, indicating that the explanatory variable has a high degree of explanation for the explained variable.

Table 6.

Regression analysis results of Chinese commercial banks (dependent variable is ROE)

	Estimate	Std. Error	t value	Pr(>|t|)	Signif.
(Intercept)	3.034286	0.55963	5.422	1.68E-07	***
lnTotalAssets	0.002262	0.001657	1.365	0.173637
Lev	1.15773	0.302521	3.827	0.000173	***
MB	-0.00192	0.000787	-2.442	0.015462	*
Coll	0.037956	0.028712	1.322	0.187697
Tier1	0.007181	0.001863	3.854	0.000156	***
log (GDP)	-0.13634	0.013081	-10.422	<2e-16	***
Inflation	-0.00265	0.001243	-2.13	0.034374	*
Mreturn	-0.076	0.105	-0.728	0.468
Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Residual standard error: 0.02472 on 201 degrees of freedom
Multiple R-squared: 0.6062, Adjusted R-squared: 0.5905
F-statistic: 38.68 on 8 and 201 DF, p-value: < 2.2e-16

Data source: Balance sheets of 57 Chinese banks R-Studio

 

Using regression analysis, we estimated the impact on profitability of classical banking determinants (total assets, l leverage ratio, collateral, dividends, market to book value, Tier1Ratio and macroeconomic parameters). This article uses return on assets (ROA) and return on equity (ROE) to measure profitability. Return on assets (ROA) assesses the ability of bank managers to manage bank resources and characterizes the success of the bank as an organization. Return on equity (ROE) is considered a measure of the profitability of a corporation in relation to stockholders’ equity. Usually, in such cases, only internal determinants are used, we applied a wider class of regressors. It can be noted that external banking determinants have a significant impact on the return on assets. The growth of the economy (GDP) and the development of the financial market (MB) have a positive effect on the profits of banks. The dividend policy does not have a significant impact, as does the collateral ratio. Since the bank's assets are classified as low-risk, and they are protected by capital, market risk does not affect profitability.

5. Conclusions

Chinese commercial banks listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2014 to 2018 to conduct regression analysis to study the relationship between the rate of return and capital structure. The analysis shows that there is no common trend in the capital structure of different banks. In addition, the same factors will affect financial leverage in different directions, so separate analysis is required. It can be concluded that banks’ adaptation to market conditions occurs at different rates and has its own characteristics. According to regression analysis, we know that the total debt-to-equity ratio and the coefficient of determination are not low, and the share of liabilities in assets can explain the ROA's return on assets. The ratio of total debt to total assets (DA) affects the bank's return on equity (ROE). The ratio of total debt to total assets (DA) is significant for all banks, but it explains the bank's return on equity (ROE) 1 (Agricultural Bank of China), 8 (China Construction Bank), 13 (ICBC), 15 (Ping An Bank). It is found that the ratio of total debt to equity (DE) of all banks is very high, and to the greatest extent replaces the return on equity (ROE) of the same bank. Banks can use the borrowed deposits for loans or invest in other projects to improve the capital structure and increase profitability. Therefore, the more bank assets, the higher the profitability.

Then this paper selects the financial data of 57 Chinese commercial banks from 2011 to 2019 as the research object to establish a model to draw conclusions. Research shows that the proportion of the core capital adequacy ratio of commercial banks changes in the same direction as ROA and ROE, indicating that the higher the proportion of bank core capital in the Chinese banking industry, the greater the profitability of commercial banks. The core capital of China's listed commercial banks is mainly composed of equity and capital reserves and external input from shareholders. They are still in the initial stage of profit accumulation, and their internal capital supply capabilities are not strong. Capital helps banks withstand risks, establish a reasonable capital structure, and increase capital adequacy is essential to the development of China's banking industry. Supplementing core capital is the most fundamental means for commercial banks to improve their anti-risk capabilities. The higher the security of funds, the more conducive to improving operating performance. Through the research on the macro-influencing factors such as GDP and inflation, it can be found that the creation of an external environment suitable for the development of commercial banks also plays a crucial role in the improvement of commercial banks’ profitability, because only under the external environment of stable economic development, business Only banks can achieve better development. It is found that many factors affecting the capital structure of Chinese commercial banks are consistent with those determined by Western scholars studying the banking systems of developed economies. It can be said that China's banking system is acquiring the characteristics of a modern financial institution.

In order to be profitable, Chinese commercial banks must do: reduce losses due to loans and investments; obtain as much capital as possible at the lowest possible cost to expand loans; reduce cash held as much as possible Proportion; the bank’s various systems must be strictly implemented to strengthen internal control; to prevent economic losses caused by internal personnel due to illegal operations. Finally, this article still has some shortcomings, for example, ROA and ROE are used to measure the profitability of commercial banks. In real life, there are many factors that affect the profitability of a bank. These factors work together to determine the bank's operating conditions and development prospects. There are many factors that have not been considered in this article.

 

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