An Analysis of the Bank Specific Variables Determinants of the Operating and Financial Performance for the Licensed Banks Listed in Hong Kong Stock Exchange

The purpose of this paper is to investigate the key bank specific variables determinants of the operating and financial performance for the licensed banks listed in Hong Kong Stock Exchange and attempts to develop the best fit model which have the higher explanatory power used to explain the relationship with the operating and financial performance among the sample banks. Multiple regression analysis will used in this study. This study adopted the return on assets (ROA) and net interest margin (NIM) as the profitability indicators to measure the bank’s operating and financial performance, both indicators are known as the dependent variables. The liquidity risk, credit risk, capital adequacy, expenses management, solvency, growth rate, growth rate and efficiency were the independent variables being used to investigate and explain the impact on the operating and financial performance among the local licensed banks listed in Hong Kong Stock Exchange. Those variables are known as the independent variables and such variables often expressed by the financial ratios, those are – loan to deposits ratio (LTDR), cash to deposits ratio (CTDR), loan loss provisions to total loans (LLPTTL), total deposits to total shareholders’ equity (TDTTSE), total operating expenses (TOE), interest coverage (IC), debt to equity ratio (DTER), interest income growth rate (IIGR), total assets growth rate (TAGR). The sample size includes fourteen banks (eight were the local licensed banks and six were Mainland China banks) and the period covers seven years from 2005 to 2011.At the 5% level of significance, the results indicates that in Model 1 (Dependent variable: ROA), growth rate and solvency are the key variables have to explain the impact on the operating and financial performance for the sample banks and which were proxy by IIGR, IC and DTER. In Model 2 (Dependent variable: NIM), the key variables - credit risk, capital adequacy, liquidity risk, solvency, expenses management and growth rate which were proxy by LLPTTL, TDTTSE, LTDR, DTER, IC, TOE and IIGR are statistical significance and can concluded that those variables have the great impact to explain the relationship with the operating and financial performance among the sample banks. The result indicates that the NIM plays an important role and having the higher explanatory power than ROA when explain the impact on the operating and financial performance among the sample banks. This study further to compare with the similarities or differences for the bank specific variables exists between the local licensed banks and Mainland China banks listed in Hong Kong Stock Exchange. First, the result indicated that in Model 1, which using ROA as the profitability indicator to measure the impact on operating and financial performance for the local licensed banks and Mainland China banks listed in Hong Kong Stock Exchange, same variables (solvency and growth rate) were obtained from multiple regression models and those variables which were proxy by IC and IIGR. Second, the result indicated that in Model 2, when using NIM as another profitability indicator to measure the effects on operating and financial performance. For local listed licensed banks listed in Hong Kong Stock Exchange, the expenses management, liquidity risk and solvency are the key bank specific variables which have the higher explanatory power to explain the relationship and the impact on the operating and financial performance, as those variables were proxy by TOE, CTDR and IC. For Mainland China banks listed in Hong Kong Stock Exchange, the growth rate, credit risk and expenses management are the significant variables which have the higher explanatory power to explain the relationship and the impact on the operating and financial performance and those were proxy by IIGR, LLPTTL and TOE. Finally, only the expenses management was the common independent variable being found in local and Mainland China licensed banks listed in Hong Kong Stock Exchange.