DETERMINANTS OF BANK PROFITABILITY AND RISK-TAKING IN CHINA

By using the ordinary lease squares estimation technique, this paper examines the relationship between bank-specific characteristics together with macroeconomic factors, and profitability in Chinese banking sector. Therefore, to find out the how each factor affects the bank’s profitability. Moreover, this paper also uses three risk measures to analyze the banks’ business condition. The regression analysis is based on a panel data set consisting of 152 observations of 30Chinese banks over a 6-year period from 2011 to 2016.We found that for profitability, capital ratio and GDP growth rate have significant positive impacts and inflation rate has significant negative impact. Other independent variables do not have significant relationship with bank’s profitability. For risk, none of the independent variable has significant impact on Z-score and non-performing ratio; however, total deposits to total assets ratio and bank size have significant impact on non-interest income ratio.