Analysis on Size Effect to Commercial Banks Operation —Based on comparisons of CHINA CONSTRUCTION BANK and CHINA CITIC BANK

四、 Comparisons on the performances 一、 Analysis on assets structure 三、 Analysis on income structure 二、 Analysis on liability structure

一、 Analysis on assets structure

Balance sheet of CHINA CONSTRUCTION BANK Balance sheet of CHINA CITIC BANK 20 7

Loans  Every bank depends on the interest income from loans to make profits.  But the small banks seems to rely on loans more than large banks do.

Cash Cash and deposits with central banks the first line of defense against customer deposit withdrawals the first source of funds to look for a loan request

Cash Cash and deposits with central banks  Large bank is always faced with large number of money withdrawal, so it has to prepare more cash and deposits with center bank.

二、 Analysis on liability structure

balance sheet of CHINA CONSTRUCTION BANK balance sheet of CHINA CITIC BANK 二、 Analysis on liability structure

Deposit People think large bank has more credit and more stable To decrease their risk and meet their withdrawal, people choose the large bank The large bank has more deposits from customers Deposits from customers

Deposit the amounts under repurchase agreements

Liability Debt securities payable small bank should take more active actions to raise money

三、 Analysis on income structure

Net Interest Income reasons Many bank has developed their intermediary business to deal with the change of the interest rate. Small banks can’t develop its off-balance sheet business as well as large bank, so it still depend on its traditional business.

China Construction Bank China Citic Bank large total comprehensive income large net fee large expenses large commissio n income large operating income operating income 7 or 8 times impairment losses Difference

四、 Comparisons on the performances

China construction bank China citic bank ROA ROE NIM ES NPL Loan to deposit ratio EM Total assets 四、 Comparisons on the performances

ROA Before 2009 CITIC Bank's ROA was far smaller than China Construction Bank. After financial crisis the government's market-oriented reform of interest rates Small banks started to make financial innovation, especially promoting the service quality After 2009 the ROA of the two banks started growing, the gap between the two banks was closing

ROEEM  The ROE of the two banks were growing. ROE=ROA*EM  EM was decreasing, means financial leverage and risk were dropping.  The growth rate of China Citic Bank was faster.  Despite the leverage was decreasing, the net interest income was increasing.  The growth potential of ROE should benefit from the growth of ROA.

NIM  The small banks more depend on deposit.  NIM mirrors a bank's profitable assets of profitability. The higher the index, the stronger profitability is. In 2008, China Citic Bank's NIM was lower than the Construction Bank. But since 2009, it was more than the construction bank, and kept an increasing growth rate. In 2008, China Citic Bank's NIM was lower than the Construction Bank. But since 2009, it was more than the construction bank, and kept an increasing growth rate.

NIM To commercial Banks, the main source of profit is the savings and loan spreads during a long period of time. But market-based reform of interest rates both narrowed spreads and declined the profits. The NIM will decline in the future. So banks should actively take the fee of the intermediary business as a major resource of income. The banks are actively participating in service and product innovation after the financial revolution. So the age of depending on interest rate spread for making revenues is over.

ES  After the financial crisis, China Citic Bank gradually returned to the business operation level in 2008.But recovery speed of China Construction Bank ES was hard.  ES can measure the effectiveness of a financial firm's intermediation function in borrowing and lending money and also shows us the intensity of competition in the firm's market.

Financial innovation and good services fierce market competition traditional big banks face pressures from the reduction of deposits and the reform of service Recovery speed of big bank ES was hard Force bank to find new ways to mend the deteriorating earnings spread

Loan to deposit ratio  Loan to deposit ratio measures how much the balance is used to send back loans, the higher proportion, the worse the bank's liquidity.  It also reflects the banks' courage to create liability for a capital operation positively.  If the other factors constant, the higher loan-to- deposit ratios indicate the higher efficiency and the stronger profitability of bank assets.

Loan to deposit ratio  Due to the powerful deposit-taking ability and strict control of the liquidly risk, the loan-to-deposit ratio of Construction Bank was lower than the Citic Bank.  The Construction bank is facing with the higher risk of deposit outflows and greater need for loans.  The growth of Loan to deposit reflected the extraordinary pressure of increasing deposits for banks.

NPL The total amount of NPL of Construction Bank was so great that it was to digest in a short time. China Construction Bank faced an enormous risk  In comparison with China Citic Bank, whose response of it was slower, has leaved the historical problem.

There are several underlying issues remain open to question:  First, the capital market system reform.  Second, the adjustment of the interest rate, the narrowing of the spreads, the increasing interest rate risk for commercial banks.  Third, the banks' operation and management level are not good enough, as well as the risk prevention capacity.

With the fiercer competition, both of large banks and small banks ought to change their structure of assets and liability to reduce the risk, compete with others and stand out. In conclusion The performance of a large bank is better than the small bank form the table. But a small bank may has more creativity and innovation.

小组成员：巩成华 张语楠 杨晨茜 郑越 邱云