Cost Efficiency Analysis in Chinese Banking Sector

Employing the stochastic frontier approach (SFA), this dissertation evaluates the cost efficiency of the Chinese banking sector over 2002-2014. The main objective is to assess whether the cost efficiency level of Chinese banking sector has a continuous growth in the post-reform period (2002-2014). On average, banks in China are operating 18.7%-27.34% below the ideal cost efficient level, but their overall cost efficiency has an increasing tendency over time. The dissertation also investigates the impact of internal factors and macro-environment factors on bank cost efficiency by using an econometric model. The econometric model is estimated by GMM estimation as the “non-performing loans” is assumed to be an endogenous regressor. The findings suggest that the GDP growth enhances bank cost efficiency while the inflation damages bank cost efficiency in China. The internal determinants that significantly influence the cost efficiency of banks in China comprise asset quality, credit risks and capitalization