An Empirical Analysis of Taiwan Commercial Banks' Profitability By Using Financial Ratios

• Main Authors: Meng-Po Chou, 周夢柏
• Other Authors: Chien-Hung Chen
• Format: Others
• Language: zh-TW
• Published: 2002
• Online Access: http://ndltd.ncl.edu.tw/handle/31878014240324031940

碩士 === 朝陽科技大學 === 財務金融系碩士班 === 90 === Abstract After the Ministry of Finance issued 16 licenses for new banks in 1992, the domestic bank industry gas stepped into a warring time. Facing increasingly tough competition and the serious impacts resulted from the breakdown of bubble economy and financial storm of Southeast Asia in 1997, the operation of banks that desire to increase their market shares become difficult than ever. The objective of this study is to analyze the key factors that have significant correlations with profitability of domestically listed commercial banks, by use of the relations linking various financial ratios and profitability, in order to serve as a reference for financial diagnosis and operation planning for bank industry. The objects were 30 listed commercial banks of financial sector as categorized by Taiwan Stock Exchange. The study covers a period from 1992 to year-end of 2000. The data was sourced from financial data bank of Taiwan Economic Journal (TEJ). After reference to relative literatures, 24 financial ratios were used as independent variables for this study, and three profitability indicators – rate of return on assets, net pretax income rate, and operating income rate were used as dependant variables. By using the Principle Component Analysis combined with Step-wise Regression Method, Results of empirical study were shown as follows: 1.The profitability of listed commercial banks significantly correlates with their asset qualities and efficiency factors. The interpretation quantity of this composition shares the greatest weighing. Increase in overdue loans will seriously erode profits of the banks. 2.In respective of efficiency, a bank showing lower operating expense rates indicates that operating expense burden of each operating income unit is less, and the operating efficiency is better. This is also one of the points that bank management are seeking for. 3.The profitability of banks significantly correlates with their growth factors, especially for the growth rate of total assets. When the growth rate of total assets surpasses colleagues, it indicates the market shares are is expanding, and the profits are growing. 4.Safety factors have a positive relation with profitability of new banks, but have a negative relation with profitability of old banks; i.e. a new bank having higher safety will have better profitability, however, higher safety of an old bank will result in poor profitability performance.