Commercial banks performance, ownership types and operations efficiency decomposition in China: a comparative analysis

This study aims to investigate the operations efficiency and decomposition of the banking sector in the Chinese mainland and conduct a comparative analysis on domestic and foreign commercial banks with different ownership types. In view of the development capability, liquidity, safety, and profitability of banks, the operations process of banks is first subdivided into a two-stage network structure, namely capital flow and capital profitability stage. Then, the non-performing loans are used as a carry-over variable connecting two adjacent periods in the first stage, to establish a novel two-stage dynamic network structure. The dynamic data envelopment analysis with network structure methodology is used to decompose the efficiency of the operations into two constituent components to give internal explanations for the root causes of inefficiency. Results show that foreign-funded banks performed better than Chinese-funded banks on average during 2016–2020, and there exists a significant divergence among different ownership types, which reflects the significant differences in their operating levels. Besides, private banks performed best among the five types of domestic banks, and rural banks performed the worst. Finally, capital flow efficiency is significantly better than capital profitability efficiency, and the main internal cause of low efficiency in the banking sector is the inadequacy of capital profitability. The new insights reveal that banks operating in China should manage their capital profitability effectively to enhance overall operations performance.