Determinants of the Performance of Banks in Hong Kong

What factors determine the performance of banks in general, and how banks’ profits and pricing behaviours are affected by market structure in particular, have been extensively studied. Amongst the various approaches, a number of studies have focused on the structure–performance relationship of banks, with the structure– conduct–performance (SCP) hypothesis and the efficient-structure (EFS) hypothesis widely tested.2 In general, banks’ profitability and pricing power are hypothesized to be determined by the market structure of the banking industry, such as the number of participating banks in the market and the market shares of banks, and bank-specific factors, such as cost efficiency, scale efficiency, and the risk attitude of banks. Macroeconomic factors, such as real GDP growth and unemployment, may also be important determinants.