Emerging markets banks performance : evidence from China's banks in Hong Kong

This chapter reports results on the performance of mainland China-owned banks operating in Hong Kong and compares them to Hong Kong State Administered Region (HKSAR) owned banks and foreign owned banks. In general, the test model performs well under diagnostic tests on variables such as net interest margin, non-interest expense, impaired loans ratio, equity multiplier and ownership structures. Profitability, as measured by return on assets and return on equity for Chinese owned banks, increased over the period 2004-2010. Chinese owned banks recorded increased performance in terms of net interest margin and equity multiplier but decreased with respect to non-interest expense and impaired loans ratio. Banks having a license also appear to be a major contributor to bank profitability across HKSAR. Compared with Hong Kong based foreign banks and local Hong Kong banks, we found that in general the mainland China banks tend to perform poorly across a number of key banking performance indicators.