Determinants of the Performance of Banks in Hong Kong

Hong Kong Monetary Authority Working Paper Series No. 06/2007

18 Pages Posted: 23 Nov 2007

See all articles by Jim Wong

Jim Wong

Hong Kong Monetary Authority

Tom Fong

Hong Kong Monetary Authority

T. C. Wong

Hong Kong Monetary Authority - Research Department

Ka-fai Choi

Hong Kong Monetary Authority

Date Written: April 25, 2007

Abstract

This paper develops a model to identify the major determinants of a bank's profit, and the general level of profitability of a banking market. It found that in Hong Kong's case, market structure, such as market concentration and market shares of banks, is not a major contributory factor. Cost efficiency of banks, which measures the ability of banks to optimise their input mix for producing outputs, is a major determinant of banks' profitability. Since larger banks are found to be in general more cost efficient than smaller banks in our previous study on banks' efficiency, larger banks can offer services at lower prices to compete with smaller banks, yet attaining a similar or even higher level of profits. Smaller banks may, therefore, be more vulnerable to intense competitions in the loan market than larger banks, particularly in cut-throat price wars.

Keywords: Profitability, Price, Hong Kong Banking, Bank efficiency, Market structure

JEL Classification: G14, G21, G28, L11

Suggested Citation

Wong, Jim and Fong, Tom and Wong, Tak-Chuen and Choi, Ka-fai, Determinants of the Performance of Banks in Hong Kong (April 25, 2007). Available at SSRN: https://ssrn.com/abstract=1032032 or http://dx.doi.org/10.2139/ssrn.1032032

Jim Wong

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Tom Fong

Hong Kong Monetary Authority ( email )

55/F, Two International Finance Centre, Central
Hong Kong
Hong Kong

Tak-Chuen Wong (Contact Author)

Hong Kong Monetary Authority - Research Department ( email )

55/F, Two International Finance Centre,
8 Finance Street, Central,
Hong Kong
Hong Kong

Ka-fai Choi

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

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