An Empirical Study on the Soundness and Profitability of Commercial Banks -Evidence from Chinese Banks

Using the panel data of Chinese listed commercial banks from 2008 to 2011 as the sample data, This paper makes empirical studies on the relationships between soundness and profitability of commercial banks. We firstly use Factor Analysis Method to pick up four principal components from eleven financial soundness(stability) indicators(FSIs), and then we make use of the four principal components and net profit margin that measuring profitability of commercial banks to study their relationships by Multiple Linear Regression. The empirical results indicate that there exists a significant linear relationship between soundness and profitability of Chinese commercial banks, among the soundness indicators, the capital category indicators showing more remarkable linear relationship with banks profitability than other indicators.