THE INFLUENCE OF MACROECONOMICS FACTOR TOWARDS …

THE INFLUENCE OF MACROECONOMICS

FACTOR TOWARDS PROFITABILITY

By

Li Jian

ID No: 014201500185

A Skripsi presented to the

Faculty of Business President University

in partial fulfillment of the requirements for

Bachelor Degree in Management

April 2019

II

PANEL OF EXAMINERS

APPROVAL SHEET

The Panel of Examiners declare that the skripsi entitled “ The Panel of

Examiners declare that the skripsi entitled "THE INFLUENCE OF

MACROECONOMICS FACTOR TOWARDS PROFITABILITY"

that was submitted by LiJian majoring in Management from the Faculty

of Business was assessed and approved to have passed the Oral

Examination on 10 April 2019.

Liswandi, S.Pd., M.M., Ph.D

Chair- Panel of Examiners

Pandu Adi Cakranegara, S.E., M.S.C., F.I., M.B.A., PFM.

Examiner I

Purwanto, ST. MM

Examiner II

III

DECLARATION OF ORIGINALITY

I declare that this skripsi, entitled"THE INFLUENCE OF

MACROECONOMICS FACTOR TOWARDS

PROFITABILITY"is to the best of my survey, it is an original work

that has not yet been used, whether in whole or in part, to obtain a degree

at a university other than the Presidential University.

Cikarang,28 March 2019

Li Jian

IV

ABSTRACT

This research aimed to examine the determinants of the profitability of RMB in China

between 2012 and 2018 and some specific technical analysis. The data used in this

study comes from China Eastern Fortune Network and China National Data Network.

By using panel data and spss to quantitatively detect and analyze this research, it is

concluded that interest rate, exchange rate,gross domestic product and money supply

have an impact on RMB earnings of 48.1%,The remaining 51.9% is due to factors not

studied in the study. In terms of variables, exchange rate and GDP have negative

impact on RMB earnings, The negative impact of the exchange rate on the profit of

RMB relative to GDP is relatively obvious. Although the negative impact of GDP on

RMB is relatively insignificant,The impact interest rates and money supply have a

positive impact on the profitability of the RMB,The positive impact of interest rates

on RMB is less obvious than money supply, and the positive impact of money supply

on RMB is very small.

Keywords: Interest rate,Exchange rate,GDP,Money Supply,RMB

V

ACKNOWLEDGEMENT

I am very happy to go abroad to go to college at the Presidential University. I want to

thank the University President for letting me get my bachelor's degree. I am also

particularly grateful to help and support my family, friends, and teachers in the skripsi

process. Imagine that without their understanding, help, and support, the completion

of the thesis will become an imagination. The people I want to thank are:

1.Mr. Purwanto, my thesis supervisor, thank you for your guidance on my paper,

whether it is knowledge or skill, or if you are writing a paper, you will give me

selfless help and understanding. Thank you for your advice and various guidance.

Your greatest help has enabled me to complete my thesis.

2.Thanks to the understanding and support of my family, I need patience in writing

the paper. When I am in a hurry, they always give encouragement, comfort and

confidence. My parents are my strongest backing.

3.Thanks to our friends and classmates in 2015, for their help, for the writing of the

papers, and for my help and support during college.

Cikarang, March, 2019

My deeply gratitude

LiJian

VI

TABLE OF CONTENTS

PANEL OF EXAMINERS APPROVAL SHEET ....................................................... II

DECLARATION OF ORIGINALITY ........................................................................ III

ABSTRACT ................................................................................................................. IV

ACKNOWLEDGEMENT ............................................................................................ V

TABLE OF CONTENTS ............................................................................................. VI

LIST OF FIGURES ...................................................................................................... X

LIST OF TABLES ....................................................................................................... XI

LIST OF ABBREVIATION ....................................................................................... XII

CHAPTER I INTRODUCTION .................................................................................. 13

1.1 Background of the Study ................................................................................ 13

1.2 Problem Identification .................................................................................... 16

1.3 Statement of Problem ...................................................................................... 16

1.4 Research Objective ......................................................................................... 17

1.5 Significance of the Study ................................................................................ 17

1.6 Scope and Limitations of the Study ................................................................ 18

1.7. Definition of Terms ........................................................................................ 18

CHAPTER II LITERATURE REVIEW ...................................................................... 20

2.1 China's banking market ................................................................................... 20

2.2 Macroeconomics ............................................................................................. 20

VII

2.2.1 Interest rate............................................................................................ 20

2.2.2 Exchange rate ........................................................................................ 21

2.2.3 Gross domestic product......................................................................... 21

2.2.4 Money supply........................................................................................ 22

2.2.5 Return on assets .................................................................................... 23

2.3 Previous Research ........................................................................................... 24

2.4 Research Gap .................................................................................................. 29

2.5 Theoretical Framework ................................................................................... 30

2.6 Hypothesis....................................................................................................... 31

CHAPTER III RESEARCH METHOD ...................................................................... 32

3.1 Research Method ............................................................................................ 32

3.2 Research Framework ...................................................................................... 32

3.3 Sampling Design ............................................................................................. 33

3.3.1 Population ............................................................................................. 34

3.3.2 Size of Sample ...................................................................................... 35

3.4. Data collection method .................................................................................. 36

3.5 Operational Definitions ................................................................................... 36

3.6 Descriptive statistical analysis ........................................................................ 37

3.7 Classical Assumption Test .............................................................................. 38

3.8 Multiple Regressions Analysis ........................................................................ 42

3.9 Hypothesis Test ............................................................................................... 43

VIII

3.9.1 F - Test .................................................................................................. 43

3.9.2 T - Test .................................................................................................. 44

3.10 Coefficient of Determination (R2) ................................................................ 45

CAPTER IV ANALYSIS OF DATA AND INTERPRETATION ................................ 47

4.1 Company Profile ............................................................................................. 47

4.2 Descriptive Analysis ....................................................................................... 50

4.3 Data Analysis .................................................................................................. 51

4.3.1 Normality Test....................................................................................... 51

4.3.2 Autocorrelation test ............................................................................... 53

4.3.3 Multicollinearity Test ............................................................................ 54

4.3.4 Heteroskedasticity Text ......................................................................... 55

4.3.5 Measuring coefficient ........................................................................... 56

4.4 Hypothesis Test ............................................................................................... 57

4.4.1 F-Test .................................................................................................... 57

4.4.2 T-Test ..................................................................................................... 58

4.5 Coefficient of Determination (R2)................................................................... 59

4.6 Interpretation of Result ................................................................................... 60

CHAPTER V ............................................................................................................... 64

CONCLUSIONS AND RECOMMENDATIONS ....................................................... 64

5.1 In conclusion ................................................................................................... 64

5.2 Recommendations ........................................................................................... 65

IX

REFERENCES ............................................................................................................ 67

STATISTICAL RESULT ............................................................................................. 71

APPENDIX-2 .............................................................................................................. 75

RAW DATA ................................................................................................................. 75

X

LIST OF FIGURES

Figure 1.1:Growth USD vs.Chinese Yuan in 2008-2018 ............................................. 13

Figure 1.2 Money supply growth ................................................................................. 14

Figure 1.3 China GDP growth ..................................................................................... 15

Figure 2.1 Theoretical Framework............................................................................... 30

Figure 3.1. Research Framework ................................................................................. 33

Figure 4.1 Histogram ................................................................................................... 52

Figure 4.2 Normal P - P Plot of Regression Standardized Residual ............................ 53

Figure 4.3 Scatter plot of Heteroskedasticity ............................................................... 56

XI

LIST OF TABLES

Table 2.1Previous research related to the RMB ........................................................... 24

Table 3.1 Listed Chinese bank ..................................................................................... 34

Table 3.2 Operational Definitions ................................................................................ 36

Table 3.3 Multicollinearity Test ................................................................................... 42

Table 4.1 Descriptive Statistics .................................................................................... 50

Table 4.2 Model Summaryb ......................................................................................... 54

Table 4.3 Multicollinearity Test Result ........................................................................ 55

Table 4.4 Weighted Statistics ....................................................................................... 56

Table 4.5 ANOVAa ...................................................................................................... 57

Table 4.6 Coefficientsa ................................................................................................. 59

XII

LIST OF ABBREVIATION

IR=Interest rate

ER=Exchange rate

GDP = Gross domestic product

MS=Money supply

ROA=Return on Assets

13

CHAPTER I

INTRODUCTION

1.1 Background of the Study

In 2008, when the United States caused a global financial crisis due to subprime

loans, many countries adopted a dollar-linked exchange rate system, and thus

depreciated against the dollar. China has also maintained a two-year exchange rate

of RMB against the US dollar, and has stabilized at 6.800. Since 2005, the Chinese

government has begun to implement the reform of the exchange rate system. On

June 19, 2010, China continued to reform in order to speed up the formation of the

RMB exchange rate rules, and created rules and regulations for floating RMB

exchange rates in the market and supply.Since the announcement, the RMB has

continued to appreciate against the US dollar, from 6.800 in June 2010 to 6.200 in

April 2013. Then, from June 2013 to July 2015, the exchange rate of the RMB

against the US dollar remained at 6.150,the US dollar began to appreciate.

Figure 1.1:Growth USD vs.Chinese Yuan in 2008-2018

Source: www.kitco.com , 2018

China's forward foreign exchange market sprouted in April 1997, and the bank of

China began to conduct long-term foreign exchange settlement as a pilot. In April

2003, China's four major banks, ICBC, Agricultural Bank, Bank of China and

Construction Bank, launched far. In the period of February 2005, China has opened

the forward settlement and sales projects of Bank of Communications, China

14

CITIC Bank and China Merchants Bank.

China forward foreign exchange settlement project at the beginning and sales use

the comprehensive position management system for settlement and sale of foreign

exchange and the realization system of collection and payment,that is the long-term

foreign exchange settlement and sales position can no longer be flat in the spot

market,making the arbitrage interest rate parity impossible in China (JieShan,

2018).

Figure 1.2 Money supply growth

Source: www.tradingeconomics.com , 2018

China's M2 money supply, including broad money in circulation and all deposits,

increased by 8.1% compared with the same period in 2017 to 182.67 trillion yuan

in December 2018, compared with a record low of 8% in November. The change is

small and there is no market expectation. 8.2% ahead. M1 money supply increased

by only 1.5% year-on-year to RMB 55.17 trillion, the lowest level since January

2014. M1 reflects the strength of the company's cash position and whether it will

raise funds for possible future investments.

China's money supply M2 averaged 610.334 billion yuan, reaching an all-time high

of 182.67 billion yuan in December 2018, and reached a record 584.10 billion yuan

in January 1996, From 1996 to 2018 (ShuiZhu, 2016).

15

The previous national economic censuses have revised the previous national

economic data, especially gross domestic product. In October 2018, the National

Bureau of Statistics of China released a GDP of 650.899 billion yuan in the first

three quarters of 2018, which was 6.7% higher than the same period last year.

Looking at the quarter, the first quarter increased by 6.8%, the second quarter

increased by 6.7%, and the third quarter increased by 6.5% (JieShan, 2010).

Figure 1.3 China GDP growth

Source: www.tradingeconomics.com , 2018

National Bank of China declared that China's comprehensive national strength has

been continuously improved since the change of the RMB policy. According to the

exchange rate theory and China's actual situation, the important factors affecting

the RMB forward exchange rate should be Sino-US spreads, foreign exchange

reserves, foreign direct investment, inflation and economic development have

pushed the RMB to the world.

The China’s government has agreed to China CITIC Bank,China Merchants Bank

and Bank of Communications to open forward foreign exchange settlement

projects,In February 2005.From June 2013 to July 2015, the exchange rate of

Exchange rate of RMB and US dollar exchange remained at 6.150, after the Asian

economic crisis.It is conducive to the improvement of the RMB exchange rate

formation mechanism and the ability to increase the price discovery of the spot

16

exchange rate (Miao, 2013).

1.2 Problem Identification

The reform of the RMB mechanism has brought development to China's banking

industry. At the same time, it has also brought a series of problems. The renminbi

going global has led to the rapid development of the Chinese banking industry. The

reform mechanism is slow, which limits the improvement of the banking industry.

The profitability of the renminbi has been fluctuating. Due to the rapid

development of the Chinese banking industry to the world, the internal problems of

banks have led to profit instability, and the exchange rate has changed significantly.

This series of problems shows the banking industry and the issue of RMB

profitability. It is also the biggest problem for China’s RMB to go global.

This research will help China improve the management level of the Bank of China,

improve the commercial banking system, promote domestic banks to enhance their

competitiveness, catch up with the developed level of the Bank of China,

international banking, and set up branches abroad. Expand global business and

improve the mechanism of RMB profitability.

1.3 Statement of Problem

The problems identified and will be examined within this research are put together

into questions as follows:

Is there a partially significance influence of：

1. Interest rate toward return on assets in the bank of China?

2. Exchange rate toward return on assets in the bank of China?

3. Gross domestic product toward return on assets in the bank of China?

4. Money supply toward return on assets in the bank of China?

17

5. Is there simlutaneously significance influence of interest rates,exchange

rate,GDP, money supply toward return on assets in the bank of China during

period of 2012-2018?

1.4 Research Objective

This research is conducted based on some variables that need to be further research

such as interest rate,exchange rate,GDP, money supply toward debt to ROA in

China bank. This research is purposed to attain research objectives, as follows:

To find out the partially significance influence of：

1. Interest rate toward return on assets in the bank of China.

2. Exchange rate toward return on assets in the bank of China.

3. Gross domestic product toward return on assets in the bank of China.

4. Money supply toward make sure to return on assets in the bank of China.

5. Simlutaneously of interest rates,exchange rate,gross domestic product ,money

supply toward return on assets in the bank of China.

1.5 Significance of the Study

This research is a basic research in China and the world's financial sector. The

research is to reduce China's financial risks. In the shrinking of financial markets,

economic development and globalization, exchange rate fluctuations are becoming

more frequent, and exchange rate changes are against the world. The economy and

the Chinese economy and people's lives have had a major impact.

1. China's banking industry

This research will provide banks with high-level research programs on bank

performance, which in turn will improve the bank's assets.

2. Academic community

18

The study is expected to complement the existing academicians on bank return on

assets issues and student knowledge about banking and finance，

2. Researcher:

The purpose of this study is to complement and gain a comprehensive

understanding of the application of several factors in the bank return on assets

issue and to become a prerequisite for completing a bachelor's degree at the

President's University.

4. Next researcher

This study is expected to receive additional extensive reference to the following

analyst studies to assess the factors of the bank return on assets.

1.6 Scope and Limitations of the Study

1. Scope：

The objective of this research was to determine the impact on the RMB, from the

following aspects, bank interest rates, gross domestic product, money supply,

bank return on assets, through these years of data, analysis of RMB issues. These

data consist of data from several Chinese banks in 2012 to 2018 years.

3. Limitations：

The limitation of this research is that it is not possible to conduct a unified study

of all banks in China.Only a part of it can be extracted for analogy.This

conclusion does not represent all Chinese banks, and his data is only in 2012 to

2018 years.

1.7 Definition of Terms

1. Interest rate：

Interest rate: Refers to the ratio of interest funds to borrowed funds for a certain

19

period of time (Miao, 2013).

2.Exchange rate:

Exchange rate: Refers to the RMB against foreign currency is the external value

of the RMB. The state management of foreign exchange is based on the principle

of independence and unity, and formulates and adjusts according to the domestic

and international price comparison level and the fluctuation of the international

financial market exchange rate (ShuiZhu, 2016).

3.Gross domestic product

Gross domestic product: Refers to the accumulation of all products and services

manufactured by a country (or region) at a certain time. It can generally express

indicators of the state (or region) of a country’s economic situation (JieShan,

2010).

4.Money supply:

Money supply: Refers to the total currency of a country serving economic and

social operations at a point in time. It has two components: the cash currency and

the deposit currency issued by the central bank’s financial institution (WenPing,

2011).

5.Return on assets

Return on assets: Refers to measure of how much net profit is generated per unit

of assets. It measures the profit from each dollar of assets.

20

CHAPTER II

LITERATURE REVIEW

2.1 China's banking market

Banks are commercial organizations that provide people with deposits and provide

credit. If people want a loan, they can provide a loan project through the bank.

Because banks play a big role in the stable economy of every national government,

banks are controlled by the state in almost all countries. Many countries have

institutionalized banking rules, according to which the liquid assets owned by banks

are one aspect of current liabilities. In addition to other regulations that protect

liquidity, banks generally still have to comply with the minimum capital

requirements of the Basel Accord (Miao, 2013).

2.2 Macroeconomics

Economics studies a country's total economic output, aggregate demand and total

supply, total national income and composition, monetary and fiscal, population and

employment, factors and endowments, economic cycles and economic growth,

economic expectations and economic policies, international trade and The

discipline of macroeconomic phenomena such as the international

economy.Macroeconomics is a branch of economics that has developed rapidly

since the publication of General discussion of interest, employment and money (Bin,

2013).

2.2.1 Interest rate

Interest rate is an important financial variable in economics. Almost all financial

phenomena, financial assets have more or less links with interest rates.

21

The interest rate determines the amount of interest that a certain amount of

borrowing capital will receive in a certain period of time. The factors affecting the

interest rate mainly include the marginal productivity of capital or the supply and

demand of capital. There is also the length of time that the promise is delivered to

the currency and the degree of risk it bears (Miao, 2013).

The interest rate is the percentage of the amount of borrowed money that the lender

borrows after borrowing (usually the interest rate is a percentage). Interest rates are

generally calculated in one year and are called annual percentage ratios. Borrowed

items include cash, used goods and industries such as cars and buildings (Miao,

2013).

2.2.2 Exchange rate

Exchange rate refers to the ratio between one currency and currency, or the price of

one currency for another currency,It is to facilitate the exchange of currency

between merchants or people between countries (Bin, 2013).

Fluctuations in exchange rates The mutual trade of the entire country has a

regulatory role. Under certain preconditions, by depreciating the national currency,

the exchange rate will be lowered at this time, and it will play a significant role in

accelerating projects that restrict exports and exports. On the other hand, currency

appreciation, which promotes the rise of the exchange rate, has a crucial role in

import and export.

Exchange rate appreciation rate = (new exchange rate / old exchange rate -1) * 100

2.2.3 Gross domestic product

Refers to all resident units of a country (or region). The total all service and product

values produced during a certain period of time is often considered as an indicator

to measure the economic status of the country (or region).

22

Gross domestic product is the main indicator of national economic calculation and

the main indicator for calculating the overall economic situation of a country,but it

is not suitable for measuring the economic situation of a region or city, because

each city's gross domestic product is transferred to higher levels or countries.So the

wealth left in each city is different (JieShan, 2010).

Gross domestic product (Y) is the total of investment (I), consumption (C),net

exports (X – M) and government spending (G).

2.2.4 Money supply

Money supply: Refers to the total currency of a country serving economic and

social operations at a point in time. It has two components: the cash currency and

the deposit currency issued by the central bank’s financial institution (WenPing,

2011).

The central bank of the world's central currency is not exactly the same, but the

basic basis for the division is consistent, that is, the size of liquidity. The so-called

liquidity refers to an asset that can be changed into cash or commodities at any time,

without any loss to the holder. The degree of liquidity of the currency is different,

and the number of turnovers in circulation is different, and the purchasing power of

the currency is Its impact on the entire social and economic activities is also

different (Fan, 2012).

M0: cash in circulation;

M1: M0+ corporate demand deposit + agency group army deposit + rural deposit.

M2: M1+corporate deposits with regular deposits + foreign currency deposits +

trust deposits+urban and rural residents' savings deposits

M3: M2+ financial bonds + commercial papers + large transferable certificates of

23

deposit.

M4: M4 = M3 + other short-term current assets.

M1 is a so-called narrow money amount, which is highly mobile and is the key

control object of the national central bank. M2 is the broad money amount, the

difference between M2 and M1 is quasi-currency, and the liquidity is weak; M3 is

established considering the status quo of financial innovation, and has not been

estimated yet.

2.2.5 Return on assets

Return on assets：return on assets is an indicator used to measure how much net

profit is generated per unit of assets. It measures the profit from each yuan of assets

(JunZheng, 2013).

The return on assets index combines the relevant information in the balance sheet

and profit and loss statement, which is a concentrated expression of the bank's

ability to use its entire funds to obtain profits.

24

2.3 Previous Research

Table 2.1Previous research related to the RMB

NO Author /Year /Title Methods Results

1 WangWenping/2011/An

Empirical Study of the

Relationship between

RMB Exchange Rate and

Stock Price

-Quantitative

-Analysis; empirical

part

-.Johansen

cointegration test,

error correction model

and Granger causality

test were used for

analysis.

a.The transmission

intermediary between

the RMB exchange rate

and the stock price has

interest rates, trade

balances, and capital

flows.

b.Dynamic and

psychological

expectations. The trade

balance is the main way

to influence the

interaction between the

RMB exchange rate and

the stock market price.

c.Play a role. But the

mediating role of

interest rates and

capital flows has not

been fully realized.

2 Zhangxiang/2010/The

flexibility of RMB

exchange rate and the

effect of China's monetary

policy

The short-term

constraint method

proposed by Bernanke

(1986) was used to

identify and estimate

the SVAR model.

a.The results of the

SVAR model estimation

show that the supply of

Chinese currency is

growing.

b.Each percentage point

increase in the rate

change will cause the

RMB exchange rate to

be proportional to the

25

value of the exchange

rate.

c.Under the

marketization

assumption, there is still

a large gap in the

flexibility of the

exchange rate.

d.Under the dynamic

simulation of the strong

exchange rate flexibility

of the RMB.

e.Into China's economic

growth, but it will also

bring inflationary

pressures.

3 ChangjunZheng /2013/The

empirical research of

banks' capital buffer and

risk adjustment decision

making: Evidence from

China's banks

-Quantitative

-14Sample

-.independent

Bank size

ROA

Loan loss

The ratio of new

provision /total assets

dependent riskit−1

a. There will be a

positive correlation

between the risks and

capital changes that can

be made according to the

capital buffer theory.

b. b. The data for the

dependent variable

bufit-1 is very obvious

and the same as the

prediction. The value in

the interval [0, 1] shows

the magnitude of the

capital change. The

speed of the change

shown in Model I is the

maximum measured in

the study Δriskit.

26

5 Yangfan/2012/Research on

the Real Exchange Rate of

RMB

-the concept,

classification and

measurement of the

actual exchange rate;

-the actual exchange

rate movement and the

source of the impact;

-the equilibrium real

exchange rate

a.Real Exchange Rate

refers to a country after

a nominal exchange

rate adjustment.The

ratio of foreign relative

price levels.

b.based on the

discussion of the

concept, classification

and measurement

methods of exchange

rate.

c.in the end, we will

comprehensively

examine the external

real exchange rate of

the RMB during the

period from 1985 to

2005.

27

6 Mengbin /2013 /Empirical

Study on the Reasons of

RMB Real Exchange Rate

Fluctuation

-Survey

Quantitative

economics

Mature quantitative

model analysis

method-

-.An empirical

analysis framework

used by many foreign

scholars founded by

Clarida and Gali,

-.Structural

Cointegration

Test,Unit Root

Test,Vector

Autoregressive Model

(VAR), Impulse

Response Function

Analysis and

Variance

decomposition

a.Internal shocks,

especially demand

shocks, are the main

source of real exchange

rate fluctuations.

b.the impact of external

shocks on real

exchange rate

fluctuations is

relatively small.

7. LiJieShan /2010/The Study

of Countermeasures About

Renminbi Exchange Rate

-Analyze the

influence of GDP

growth on exchange

rate - analyze its main

factors,

-example10

a.In the face of strong

expectations of RMB

appreciation and

speculative short-term

capital inflows,

b.In a short period of

time, it is necessary to

maintain the stability of

the RMB exchange rate,

the volatility of the RMB

exchange rate, and the

fluctuation of the

effective regulatory

28

floating rate.

c.The necessary

requirements for

maintaining and using

the independence of the

RMB rules.

8.

Sunyong/2012/The

Statistical Research on the

Reasonable Interval of the

RMB Exchange Rate

Fluctuation

-48Sample

-Combine theoretical

analysis with

empirical analysis

- based on exchange

rate

- According to the

characteristics of the

theoretical model.

The method conducts

empirical analysis.

We believe that labor

productivity is an

important basic

economic factor

affecting the RMB

exchange rate.

The coefficient of sex

is. 0.38, that is, for

every 1 percentage

point increase in labor

productivity, the RMB

exchange rate will

appreciate by 0.38

percentage points.

Explain that the

improvement of labor

productivity will

enhance the

competitiveness of

China's products in the

international market, so

that China's trade

balance

9. Zhengshuizhu/2016

/Research on the Reform

of RMB Exchange Rate

Formation Mechanism

--55Sample

a.Comprehensive

induction method.

Through the reading

and understanding of a

large number of

related books,

a.The background

and significance of

the reform of

exchange rate

formation

mechanism are

briefly described.

29

literature and research

results, the content of

the research needs of

this research is

summarized and the

understanding of the

proposed questions is

deepened.

b.Theory is linked to

reality. Applying

relevant research on

the reform of the RMB

exchange rate

formation

b. The reasons and

specific operational

methods for

exchange rate

formation rule are

described.

c.The reasons for

the failure of the

reform of the RMB

exchange rate

formation

mechanism to

achieve the set

goals were

analyzed.

10 WangMiao/2013/Research

on the Impact of RMB

Internationalization on

China's Banking Industry

-Quantitative

-14Sample

-.independent

Bank size

Loan loss

Interest rate

The ratio of new

provision /total assets

dependent ROA

Bank size and interest

have a significant

impact on bank ROA,

and the impact range is

11%.

In other words, within a

certain range, the bank's

interest rate can also

show the bank's profit.

Source: Adjusted by Researcher, 2018

2.4 Research Gap

In recent research, the number of people concerned about the impact of

macroeconomics and RMB earnings has gradually increased. Previous research has

generally focused on the relationship between macroeconomics and attributes.Most

30

researchers only studied the exchange rate fluctuations of the RMB and the risks of

volatility, which in turn affected the profitability of the RMB. There was no direct

study of the RMB's earnings. Having said that, researchers use more comprehensive

study of dependent variables to add more efficient research and fill in the gaps in

previous research (WenPing, 2011).

2.5 Theoretical Framework

This study establishes a theoretical framework through the set of relationships

between these data to illustrate and explain the interrelationship between these

variables. The theoretical framework of this research is described by Figure 2.1.

Figure 2.1 Theoretical Framework

Source：Adjusted by researcher, 2018

According to the theoretical framework of figure 2.1 above, to construct the study.

The researchers will interpret these four independent variables:interest

rate(X1),exchange rate(X2),GDP(X3), money supply(X4), and the dependency

variable is the ROA (Y).

31

2.6 Hypothesis

This assumption is constructed in a variety of ways, but it is usually the result of an

inductive reasoning process in which observation leads to the formation of theory.

This study is used to analyze the factors that affect the current RMB exchange rate

changes (JunZheng, 2012).

Based on this research and analysis, the researchers made the following assumptions:

1. Hypothesis 1: There is a significant influence of interest rate towards ROA in the

bank of China.

2. Hypothesis 2: There is a significant influence of exchange rate towards ROA in

the bank of China.

3. Hypothesis 3: There is a significant influence of GDP towards ROA in the bank

of China.

4. Hypothesis 4: There is a significant influence of money supply towards ROA in

the bank of China.

5. Hypothesis 5: There is a significant influence of interest rate, exchange rate

GDP and money supply towards ROA in the bank of China

simultaneously.

32

CHAPTER III

RESEARCH METHOD

3.1 Research Method

The research method is a tool for researchers to study specific data, and can use

quantitative and quantitative methods,The quantitative method mainly uses

statistical tools to collect and analyze data, mainly to detect data. This means that

researchers can detect variables by detecting the relationship between the data.

These can generally be displayed using tables and graphs. However, qualitative

data is not a number, and the model is generally used. Of the three research

methods, only the hybrid method can clearly predict unexpected results (Bin,

2013).

A qualitative research method that encompasses the behavior of animals and the

reasons for constraining such behaviors. It is usually a common question to expand

the required data in various forms. The purpose of this research is to explore a

problem, not to attempt to find a connection between variables in a data-based

manner. Usually this type of research is very restrictive. After all, it takes time and

price. It is often used as an exploratory study to provide a basis for quantitative

research (Bin, 2013).

The study used quantitative research,All the data in this study are all from the

network, that is, the GDP and money supply data are from China national data

network, the interest rates and exchange rates of the eight banks, and the ROA are

derived from the data published by oriental data network 2012-2018.

3.2 Research Framework

The purpose of this research is to resolve the factors affecting RMB and reasons for

https://en.wikipedia.org/wiki/Maurice_Hilleman

33

investigating the impact of the RMB. Some factors affecting the RMB should

include bank interest rates,exchange rates, GDP, and money supply.

Figure 3.1. Research Framework

Source: Adjusted by Researcher, 2018

Figure 3.1 shows the research steps to answer whether there is interest rate,exchange

rate, GDP, money supply, and the impact in ROA.

3.3 Sampling Design

Sample design refers to road signs or structures, which are preliminary to the

selection of research samples and affect many other types of research. In the

context of nature, researchers want to research, population, or number, and so on.

First, you need to choose a framework to represent the target you are studying, and

then select samples from it, either regular or random. The sample taken can be 50%

34

or 100%. It has some shortcomings because it has some connection with the

population (Miao, 2014).

In this study, researchers used non-probability sampling as a purposeful sampling.

Because this method looks for samples in a strategic rather than random manner,

this sample is suitable for this study. The standard samples for this study are

explained below:

1. All listed banks in China will have financial information on these banks on the

eastnet fortune network.

2. Each of the eight banks publishes the financial statements and basic information

for the year.

3. From 2012 to 2018, the country's GDP will be published on the national data

network.

Based on the above information, this research sample selects the exchange rate,

interest rate, ROA of 8 listed banks owned in China.

3.3.1 Population

In the study of this study, the research population was all from China's interest rate,

exchange rate,GDP and money supply,ROA from eight banks in China.

35

Table 3.1 Listed Chinese bank

No Bank Name Abbrevia

tion

Established

Date

1 Bank of China limite BOC 1912

2 Industrial and Commercial

Bank of China Limited,

ICBC

ICBC 1984

3 China Construction Bank CCB 1954

4 Hua Xia Bank HB 1992

5 China Everbright Bank CO.,

LTD

CEB 1992

6 China CITIC BANK CB 1987

7 Agricultural Bank of China ABC 1951

8 China Merchants Bank CMB 1996

Source: Adjusted by researcher based on the Dong Fang finance website (2018)

3.3.2 Size of Sample

In this study, the researchers used the bank interest rates of eight Chine’s banks, the

exchange rate, and the ROA for a total of seven years. China's national data online

GDP. Considering all the variables from 2012 to 2018, the sample size of this study

is 56, including 8 Chinese banks and seven years of finance. It also includes China's

7-year GDP.

36

The financial information of the above banks comes from the eastern fortune

network, and the GDP comes from the China national data center for a total of

seven years.

3.4 Data collection method

The collection of data is the most important part of this research, and it determines

the key to the success of this research (Fab, 2012).

The data in the thesis research is divided into two categories. First, they randomly

sample and then collect it in person until the data collection is complete, such as

questionnaires.Another way is to go to some financial websites and collect the

collected data on the website, which saves time and has a province.

The study used the second method of data collection. The data was published by the

major banks on the eastern fortune network,other data were released in the China

national data center.

3.5 Operational Definitions

The definition of the operation is how to make it easier for your variables and the

numerical process after analysis to be clearer and the ideas will not be confused

(Miao, 2013).The relationship between the variables is analyzed as shown in Table

3.2:

Table 3.2 Operational Definitions of data

No Variable Definition Formula Measuring

Scale

37

1 Interest rate It refers to the

ratio of the

amount of interest

to the total amount

of borrowed

capital in a given

period of time

(ShuiZhu, 2016).

Interest

amount/principa

l×100%

Ratio

2 Exchange rate It is the ratio or

price of a

country's currency

to another

country's currency

(Yong, 2017).

One country

currency/Another

country

currency×100%

Ratio

3 GDP It is to measure

the speed of a

country’s

economic growth

(JieShan, 2010).

Ratio

4 Money supply It refers to the

amount of money

in circulation at a

certain point in

time (Miao, 2013).

M=B×K

Multiply

Sources: Adjusted by Researcher, 2018 based on Gong Jing Hui (2013)

3.6 Descriptive statistical analysis

Descriptive statistics uses methods to measure and calculate based on individual

variables. These methods have average, maximum, and minimum,and standard

deviation (AiAn, 2013).

Mean is the average of this set of data, and the individual values of the set of data

38

are added and divided by the total number of sets of data. The following is the

calculation of the average (JunZheng, 2013).

Eq.1

Where:

N = number of the observation in current sample

Max and Min are the maximum and minimum values of the series in the current

sample (Jack, 2010).

Standard deviation is a set used to quantify the variation or to decentralize a set of

data values, a lower standard deviation indicates that the data points tend to

approach the average (also known as the expected value), and a higher standard

deviation indicates that the data points are distributed over A larger range of values

(Miao, 2013):

Eq.2

Where :

N = number of observations in the current sample

X = mean of the data

3.7 Classical Assumption Test

The statistical rules of classical hypothesis must satisfy multiple linear regression

analysis.The classical hypothesis test is used to test the relationship between

39

variables. It contains, normality test and linear test, autocorrelation test,

heteroscedasticity test, multicollinearity test, and four methods (JunZheng, 2013).

1. Normality test

Normality test is used to detect whether the dependent and independent variables

are normally distributed and whether they are normally distributed. The regression

analysis is assumed to be that the residual follows a normal distribution, and the

normality test can be completed by graphical analysis and statistical analysis. The

graphical analysis will be tested by histograms and statistical analysis of the Jarque

Bera test (Bin, 2013).

Jarque-Bera is a stastistic test, which is used to test whether the data in this group is

normally distributed.the statistic is computed as:

According to the null hypothesis of the normal distribution, the statistical analysis

of Jarque-Bera has two results. If the result of Jarque-Bera is above the general

level, the data is normally distributed. The general horizontal probability of this

study is α = 5% or 0.05, and the results are as follows:

a. If the probability of Jarque-Bera is >0.05, then the data detected is normally

distributed.

b. If the probability of Jarque-Bera is <0.05, then the data detected is not normally

distributed.

2. Heteroscedastisity test

Heteroscedasticity - the opposite is the same variance - applies to statistics,

especially to time series analysis, linear regression, its role is the variance of the

model or description error for all the different conditions of detection, it is generally

the basic assumption of one of the models The variance is homogenous and the

error of the model is the same (Miao, 2013).

40

In linear regression analysis, the fact that the error of the model (also known as

residual) is not the same variance results in model coefficients using ordinary least

squares (OLS) estimates that are neither unbiased nor model coefficients with the

least variance. Their variance estimates are unreliable In linear regression detection,

if the model value of the least squares prediction is used, not unbiased, and there is

no minimum variance value, then this event is caused by the fact that the residual

and the error are not one variance. The prediction of this variance is not recognized.

3. Autocorrelation test

Autocorrelation is a fundamental feature of research data, in which related objects

are the main cause of correlation between variables. It is the opposite of the

assumption of instance data independence and is the foundation of almost all

general models. It generally exists only between these types of data, provided that

the data is not randomly selected, but is homologous.The formula to calculate

Durbin-Watson test itself is stated as follows (JunZheng, 2010).

The basics for decision making in auto-correlation test as stated by

Santoso (2010) are:

a)If the value of Durbin-Watson < -2 indicates positive autocorrelation.

b)If the value of Durbin-Watson -2 < DW < 2 indicates there is no autocorrelation.

c)If the value of Durbin-Watson > 2 indicates negative autocorrelation

4. Multicollinearity test

Collinearity is a very common phenomenon.From the linear estimation of another

estimated variable, the variable in the multiple regression model can be estimated,

and its estimation accuracy is very high. Under this event, the coefficient values of

41

the multiple regression may echo small changes in the model data, and this change

is not regular. Multicollinearity does not reduce the reliability of the model's

estimation power, it only reduces the estimated value of the relevant individual

(Miao, 2013).

The correlation matrix can be analyzed to test the multicollinearity predict

multi-collinearity problems. The table below lists the correlation coefficients

represented by the r values.

42

Table 3.3 Multicollinearity Test

Source: Jason & Steven, 2013

This table indicates that when the value of r is >0.7,the coincidence relationship

between the detected variables is relatively large. On the contrary, when the value

of r is <0.7,the coincidence relationship between the detected variables is relatively

small. Therefore, in order to avoid too much deviation, the correlation coefficient

should be <0.7 when detecting.

3.8 Multiple Regressions Analysis

Multiple Regression Analysis refers to treating a variable as a dependent variable in

a related variable, and the other one or more variables as an independent variable,

establishing a linear or nonlinear mathematical model quantity relationship between

multiple variables and utilizing A statistical analysis method for analyzing sample

data. There are also multiple regression analysis that discusses the linear dependence

of multiple independent variables and multiple dependent variables, called the

multiple multiple regression analysis model(or simply many-to-many regression)

(Percival, 2015).

The influence of independent to dependent variables can be written in linear

regression equation as follows:

𝐘 = 𝛃𝟎 + 𝛃𝟏𝐗𝟏 + 𝛃𝟐𝐗𝟐 + 𝛃𝟑𝐗𝟑 + 𝛃𝟒𝐗𝟒 + 𝛆 Eq.5

Where:

Y = Return on assets

43

β0 = Y intercept

β1 - β4 = regression coefficient

X1 =Interest rate

X2 = Exchange rate

X3 = GDP

X4 = Money supply

ε = random error

3.9 Hypothesis Test

3.9.1 F - Test

The F test can dissolve the denaturation of the data set according to the sum of

squares, and its function is to show the ratio of the squares of different data sources

(Argyrous, 2005).The formula is as following：

Where:

F = statistic test for F distribution

R2 = coefficient of determination

k = number of independent variables in the model

n = number of samples

H0: β1 = β2 =β3 =β4, when the significance of F > 0.05, then result will be accept H0。

44

Ha: at least when βi 0, when the significance of F < 0.05, then result will be reject

H0。

3.9.2 T - Test

The t test is an inferred statistic used to determine whether there is a significant

difference in the mean between the two groups that may be related to certain features.

It is primarily used for data sets, such as data sets recorded as the result of 100 coin

flips, following a normal distribution, and there may be unknown conditions.

variance. The t test is used as a hypothesis testing tool that allows the test to be

applied to the assumptions of the population (Argyrous, 2005).

The t-test looks at the t-statistics, t-distribution values, and degrees of freedom to

determine the probability of a difference between the two sets of data. To test with

three or more variables, you must use analysis of variance.

Where:

j = 1, 2, 3.... n

t = the significance of in dividable regression coefficients

bj = estimated coefficient of independent variable

βj = actual coefficient of independent variable

Sbj = standard error of the regression coefficient

The t-test will help researcher in determining the partial influence among an

independent variable towards dependent variable.The hypotheses of t-test are:

45

1. H01:β1＝0 or if probability t-statistics ＞0.05 then there is no significant partial

influence of interest rate towards return on assets.

Ha1:β1≠0 or if probability t-statistics ＜0.05 then there is no significant partial

influence of interest rate towards return on assets.

2. H02:β2 ＝0 or if probability t-statistics ＞0.05 then there is no significant partial

influence of exchange rate towards return on assets.


influence of exchange rate towards return on assets.


influence of GDP towards return on assets.

H03:β3≠0 or if probability t-statistics ＜0.05 then there is no significant partial

influence of GDP towards return on assets.


influence of money supply towards return on assets.


influence of money supply towards return on assets.

3.10 Coefficient of Determination (R2)

the coefficient of determination, denoted R2 or r2 and pronounced "R squared", is

the proportion of the variance in the dependent variable that is predictable from the

independent variables (Yong, 2017).

It is a statistic used in the context of statistical models whose main purpose is either

the prediction of future outcomes or the testing of hypotheses, on the basis of other

related information. It provides a measure of how well observed outcomes are

replicated by the model, based on the proportion of total variation of outcomes

explained by the model (Argyrous, 2013).

47

CAPTER IV

ANALYSIS OF DATA AND INTERPRETATION

4.1 Company Profile

1. Bank of China

Bank of China, BOC was officially established on February 5, 1912 with the

approval of Mr. Sun Yat-sen. It is a large state-owned bank managed by the central

government and a national deputy ministerial level. Bank of China is the only bank

in China that has been operating for more than 100 years and is the most

internationalized and diversified bank in China. The agency is located in mainland

China and 56 countries and regions. Registered capital of 2,943,777,121.4 million

yuan, Bank of China listed time: 2006-07-05, stock code is 601988, the total value

of the Chinese banking market as of 2018: 1,086.3 billion, income (three): 0.521,

PE (moving): 5.32, net assets :5.024, P/B ratio: 0.73, revenue: 376.1 billion

year-on-year growth of 3.32%, net profit: 153.3 billion year-on-year growth of

5.34%, gross profit margin: 0.00%, net profit margin: 43.27%, ROE: 10.28% debt

ratio: 91.93% .

2. Industrial and Commercial Bank of China

Industrial and Commercial Bank OF China（ICBC）was established on January 1,

1984. The head office is located at No. 55, Fuxingmen Inner Street, Beijing. It is a

large state-owned bank under the central management and a national deputy

ministerial unit. Registered capital of 34,932,123,460 yuan, time to market:

2006-10-27, stock code 601398, the total value of the Chinese banking market as of

2018: 1.98 trillion, income (three): 0.672, PE (moving): 6.19, net assets: 6.119 P/B

ratio: 0.91, revenue: 577.1 billion year-on-year growth of 7.71%, net profit: 239.6

billion year-on-year growth of 5.10%, gross profit margin: 0.00%, net profit margin:

41.61%, ROE: 11.36%, debt ratio: 91.91%.

48

3. China Construction Bank（CCB）

China Construction Bank was established on October 1, 1954. The head office is

located at No. 25, Financial Street, Beijing. It is a large state-owned bank under the

central management and a national deputy ministerial unit. Registered capital of

25001097.7486 million, time to market: 2007-09-25, stock code 601939, the total

value of China Construction Bank market as of 2018: 1.74 trillion, income (three):

0.856, PE (moving): 6.09, net assets: 7.370, P/B ratio: 0.94, revenue: 500 billion

year-on-year growth of 5.94%, net profit: 214.1 billion year-on-year increase of

6.39%, gross profit margin: 0.00%, net profit margin: 42.97%, ROE: 12.06%, debt

ratio: 91.70% .

4. Hua Xia Bank(HB)

Hua Xia Bank established in Beijing in October 1992, is a joint-stock bank. In

March 1995, the shareholding system was reformed. In September 2003, the initial

public offering of shares was listed and traded (stock 600015), becoming the fifth

listed bank in the country. Registered capital of 1282268.665 million yuan, time to

market: 2003-09-12, stock code 600015, up to 2018 Huaxia Bank market total value:

120.5 billion, income (three): 0.943, PE (moving): 6.23, net assets: 12.36 city Net

rate: 0.63, revenue: 50.62 billion year-on-year growth of 1.07%, net profit: 14.51

billion year-on-year growth of 2.01%, gross profit margin: 0.00%, net profit margin:

28.88%, ROE: 8.83%, debt ratio: 93.02%.

5. China Everbright Bank(CEB)

China Everbright Bank was established in August 1992. It is one of the subsidiaries

of China Everbright Group. It is a ministerial company directly under the State

Council. It is headquartered in Beijing and approved by the State Council and

approved by the People's Bank of China. Financial enterprise. Registered capital of

4667909.5 million, time to market: 2010-08-18, stock code 601818, as of 2013,

49

China Everbright Bank's total market value: 213.1 billion, income (three): 0.641,

PE (moving): 5.76, net assets: 5.554 P/B ratio: 0.73, revenue: 81.36 billion


9.15%, gross profit margin: 0.00%, net profit margin: 34.17%, ROE: 9.50%, debt

ratio: 92.77%.

6. China CITIC Bank

China CITIC Bank formerly known as CITIC Industrial Bank, was founded in 1987,

changed its current name at the end of 2005, and is headquartered in Beijing.

Registered capital: 489,347,596,573 yuan, on April 27, 2007, CITIC Bank was

listed on the Shanghai Stock Exchange, stock code: 601998, the total value of

CITIC Bank's market in 2018: 289.2 billion,Revenue: 0.910, PE (moving): 5.89, net

assets: 8.925, P/B ratio: 0.66, revenue: 121.4 billion year-on-year increase of 5.27%,

net profit: 36.80 billion year-on-year increase of 5.93%, gross profit margin: 0.00% ,

net interest rate: 30.87%, ROE: 9.50%, debt ratio: 92.55%.

7. Agricultural Bank of China（ABC）

Agricultural Bank of China was established in 1951. The head office is located at

No. 69, Jianguomen Inner Street, Beijing. It is a large state-owned bank under

central management,a national deputy ministerial unit. Registered capital:

3,247,941,700 yuan, time to market: 2006-10-27, stock code 601288, as of 2018,

the total value of the Agricultural Bank of China is 1,287.9 billion, income: 0.490,

PE (moving): 5.63, net assets: 4.430, P/B ratio: 0.83, revenue: 457.4 million


7.25%, gross profit margin: 0.00% net profit margin: 37.56%, ROE: 11.96%, debt

ratio: 92.80%.

8. China Merchants Bank

China Merchants Bank is China's first state-owned joint-stock commercial bank

50

wholly owned by corporate legal person, referred to as China Merchants Bank. It

was established on April 8, 1987 and was founded by the Hong Kong Central

Enterprise Investment Promotion Group Co., Ltd. One of the fifth largest banks in

China's mainland market value and one of the eight-line five-guarantee of

Chinese-funded financial stocks in Hong Kong. The head office of China Merchants

Bank is located in Futian District, Shenzhen.

China Merchants Bank A shares were listed on the Shanghai Stock Exchange On

April 9, 2002,. On September 8, 2006, China Merchants Bank began public

offerings in Hong Kong, issuing approximately 2.2 billion H shares, raising HK$20

billion, and listing on the Hong Kong Stock Exchange on September 22. The net

capital exceeds 290 billion and the total assets exceed 4.4 trillion. Revenue in 2018

(3): 3.194 PE (moving): 8.60, net assets: 21.42, P/B ratio: 1.43, revenue: 188.2

billion year-on-year growth of 13.21%, net profit: 67.38 billion year-on-year growth

of 14.58%, gross profit margin: 0.00 %, net profit margin: 35.90%, ROE: 14.30%,

debt ratio: 91.87%

4.2 Descriptive Analysis

Descriptive statistics enumerate certain parameters of the data set, which use a

comparison with the fixed number to check each average and standard deviation to

help the user understand the specific data set, and further recognition.

Descriptive Statistic Result

Table 4.1 Descriptive Statistics

Mean Std. Deviation N

ROA 1.0405 0.18998 56

Interest rate(x1) 2.3875 0.75548 56

Exchange rate(x2) 6.399871 0.26468 56

51

Source: Constructed in SPSS 20.0 (2018)

According to the above table, the specific data of the variable is clearly

explained.as follows:

1. ROA is a dependent variable. Its average value is 1.0405 and the standard

deviation is 0.18998.

2. The interest rate is an independent variable. The average is 2.3875 and the

standard deviation is 0.75548.

3. Exchange rate is an independent variable. The average is 6.399871 and the


4. GDP is an independent variable. Its average is 702,848.686 and the standard

deviation is 119032.9634.

5. Money supply is an independent variable. The average is 425285.4857 and the


4.3 Data Analysis

4.3.1 Normality Test

Quantitative data generally uses a histogram (JunZheng, 2011).Use the percentage

of data to make a histogram. The variables are placed on the x-axis and the

frequency is placed on the y-axis to form a histogram. The relative frequency of the

analyzed histogram is shown as limiting the frequency corresponding to the height.

GDP(x3) 702848.686 119032.9634 56

Money supply(x4) 425285.4857 94714.55618 56

52

Figure 4.1 Histogram

Source:Constructed in SPSS 20.0 (2018)

Analysis of the histogram in Figure 4.1 shows that most of the results are between -2

and 2, and the graphical data is normally distributed. This result shows that the

histogram is evenly distributed and presents a left-right distribution.

53

Figure 4.2 Normal P - P Plot of Regression Standardized Residual


The normal P-P map based on the regression normalized residual is shown in Figure

4.2. The analysis shows that in the normal distribution, the data is distributed on the

diagonal or near the diagonal, and the regression model supports the normal

hypothesis.

4.3.2 Autocorrelation test

Auto correlation is a characteristic of data which shows the degree of similarity

between the values of the same variables over successive time intervals (Xiang,

2015).At Durbin Watson, they determined that:

a. Durbin Watson is less than -2, indicating that there is a positive autocorrelation

problem.

54

b. Durbin Watson is greater than +2, indicating a negative autocorrelation problem.

c. Durbin Watson is between -2 and +2, which indicates no autocorrelation problem.

Table 4.2 Model Summaryb


Durbin-Watson's results show that the data exceeds -2 but is less than + 2. According

to the test rules, we conclude that this test does not have an autocorrelation trend in

the regression model.

4.3.3 Multicollinearity Test

Perform this test is to determine if there is a correlation between the independent

variable and other independent variables. This study has four independent variables,

interest rate, exchange rate, GDP, and money supply. There is no multicollinearity

problem in normal regression models. If the correlation between the independent

variables is Tolerance<0.1or ＞1 andVIF＜or＞， then there is no multicollinearity

problem in the model. If the independent variable correlation value

is0.1<Tolerance<1 ,1<VIF<10 , there is a multicollinearity problem between the

excluded variables..

Model R R Square Adjusted R Square Std. Error of the

Estimate

Durbin-Watson

1 0.767a 0.502 0.481 .161201603178227 0.333

a. Predictors: (Constant),Interest rate, Exchange rate, GDP,Money supply

b. Dependent Variable: ROA

55

Table 4.3 Multicollinearity Test Result


These data show that they satisfy 0.1<Tolerance<1, 1<VIF<10, which means that

there is no multicollinearity problem in the data model we studied, which further

indicates that our research model is no problem.

4.3.4 Heteroskedasticity Text

Collinearity Statistics

Tolerance VIF

.303 3.295

.260 3.077

.200 5.333

.600 9.939

56

Figure 4.3 Scatter plot of Heteroskedasticity


Figure 4.4 is a scatter plot of the heteroscedasticity of SPSS 20. In the figure we can

see that the data in the figure is randomly and irregularly distributed, and there is no

regular pattern. The results at this time show that there is no heteroscedasticity.

4.3.5 Measuring coefficient

The significance of the decision coefficient (R2) is to measure the strength of the

dependent variable affecting the dependent variable. Since more than three

independent variables are used, the adjusted Rsquare is used.

Table 4.4 Weighted Statistics

Model Summaryb

Model R R Square Adjusted R

Square

Std. Error of

the Estimate

Durbin-Watson

1 0.767

a 0.502 0.481 0.161201603 0.333

57


When the independent variable affects the strength of the dependent variable, its

value is close to 1, and this coefficient is determined to be good. As shown in the

graph, the adjusted R-squared value is 0.481. In other words, the independent

variables we selected, interest rate, exchange rate,GDP, money supply, have an

impact on ROA of 48.1%. Relatively, the remaining 51.9% is the impact of other

variables not studied in the study.

4.4 Hypothesis Test

4.4.1 F-Test

The F test is very sensitive to the normality of the data, so the levene test, the

Bartlett test, or the Brown–Forsythe test are more robust than the F test when

testing the homogeneity of the variance. The F test can also be used for the mean

comparison between three or more groups, but if the data being tested cannot satisfy

the conditions of a normal distribution, the robustness of the data will be greatly

reduced, especially when the significance level is compared low time.When the

numerical result is affected by the independent variable, this value should be <0.05.

Table 4.5 ANOVAa

ANOVAa

Model Sum of Squares df Mean

Square

F Sig.

Regression 0.660 4 0.165 6.349 0.000b

Residual 1.325 51 0.026

Total 1.985 55


178227

58

As shown, the last value in table 4.4 shows that the P value (Sig) is 0.000 <0.05. So

all the independent variables in the study data have a significant impact on the

dependent variable ROA.

4.4.2 T-Test

A t-test is a type of inferential statistic used to determine if there is significant

difference between the means of two groups, which may be related in certain

features.

the formula for a test statistic that either exactly follows or closely approximates a

t-distribution under the null hypothesis is given. Also, the appropriate degrees of

freedom are given in each case. Each of these statistics can be used to carry out

either a one-tailed or two-tailed test.

Once the t value and degrees of freedom are determined, a p-value can be found

using a table of values from Student's t-distribution. If the calculated p-value is

below the threshold chosen for statistical significance the 0.05, then the null

hypothesis is rejected in favor of the alternative hypothesis.

59

Table 4.6 Coefficientsa


Analysis of the results of the four independent variables according to table 4.4

1.The result of interest rate（X1）: T is 0.000<0.05, and interest rate has a significant

effect on the ROA.

2.The result of exchange rate(X2): T is 0.04 <0.05, and GDP has a significant

impact on the ROA.

2.The result of GDP(X3): T is 0.000 <0.05, and GDP has a significant impact on the

ROA.

4.The result of money supply(X4):T is 0.006<0.05, and money supply has a

significant effect on the ROA.

4.5 Coefficient of Determination (R2)

The coefficients are generally expressed as a percentage, which is 1, if the number

Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig.

B Std.

Error

Beta

(Constant)

3.290 2.917 1.128 .000

Interest rate(X1) .039 .052 .154 .743 .000

Exchange rate(X2) -.357 .513 -.498 -.696 .04

GDP(X3) -5.019

E-007

.000 -.314 -.387 .000

Money supply(X4) 7.011E

-007

.000 .350 .246 .006

60

is closer to 1, it means that the more data is on the regression line, if the value is 0.9,

then it means that 90% of the data is on the regression equation.

Table 4.7 Model Summaryb


Analysis of the table 4.7 model summary, R is 0.767, R square is 0.502, the

independent variable of this study is four, so we will take adjusted R square, its value

is 0.481, so the proportion of this study is 48.1%, the remaining research accounted

for 51.9%.

4.6 Interpretation of Result

1. Hypothesis 1: There is a significant influence of interest rate towards ROA in

the bank of China

Analysis of the 4.4.T test study, the results show that interest rate has a significant

impact on ROA, the P value of interest rate is 0.000<0.05, so acceptable H1.

A bank is a financial institution that undertakes credit intermediation through

deposits, loans, exchanges, and savings. The bank is one of the financial

institutions and the most important financial institution. Its main business scope

includes absorbing public deposits, issuing loans and discounting bills. In China,

Model R R Square Adjusted R Square Std. Error of the

Estimate

Durbin-Watson

1 .767a .502 .481 .161201603178 .333

61

the People's Bank of China is the central bank of China.

It can be seen that interest rate is the main source of income for banks. It is to

obtain benefits through deposit and loan spreads, that is, to pay depositors less

interest rates, and mortgage loans have a higher rate. The bank's deposit and loan

business not only allows depositors to obtain interest income, but also provides

services for corporate finance (Fan, 2012).

2. Hypothesis 2: There is a significant influence of exchange rate towards ROA in

the bank of China.

Analysis of the 4.4.T test study, the results show that exchange rate has a

significant impact on ROA, the P value of interest rate is 0.04<0.05, so acceptable

H2.

The exchange rate generally refers to the quotation of RMB to the US dollar, that

is, how many US dollars are converted into RMB. The appreciation of the RMB

refers to the rise in the RMB exchange rate.

The exchange rate has been formulated and announced by the state administration

of foreign exchange before 1994. After the exchange rate was merged on January

1, 1994, a single, managed floating exchange rate system based on market supply

and demand was implemented. The People's Bank of China is based on the

previous one. The price formed by the Japanese inter-bank foreign exchange

market announces the exchange rate of the major currencies such as the RMB

against the US dollar. Based on this, each bank will list itself within the floating

range prescribed by the People's Bank of China (Yong, 2013).

3. Hypothesis 3: There is a significant influence of GDP towards ROA in the

bank of China.

Analysis of the 4.4.T test study, the results show that GDP has a significant

62

impact on ROA, the P value of GDP is 0.000<0.05, so it is acceptable for H1.

Gross domestic product is usually used to compare with the same period of last

year. If it increases, it means that the economy is faster and it is better for its

currency to appreciate. If it is reduced, it means that the economy is slowing

down and its currency is depreciating. The GDP growth rate of 3% is the ideal

level, indicating that economic development is healthy. Above this level, there is

inflation pressure; below 1.5% growth, it shows that the economy is slowing

down and there is a recession sign.

The growth rate of gdp declines, indicating that the economy is sluggish,

corporate profits are falling, days are sad, and even losses. This requires banks to

provide funds for financing and ease the pressure on funds. If the interest rate is

high, the burden on enterprises is too high, which is not conducive to the

development of the whole society (JunZheng, 2013).

From the national level,GDP does not work, directly leading to employment

problems, causing social problems. From the current domestic practice is to

increase infrastructure projects and expand domestic demand. Under such

circumstances, raising the interest rate is not conducive to the financing cost of

the whole society (Xiang, 2010).

4. Hypothesis 4: There is a significant influence of money supply towards ROA in

the bank of China.

Analysis of the 4.4.T test study, the results show that money supply has a

significant impact on ROA, the P value of interest rate is 0.006<0.05, so

acceptable H4.

Statutory deposit reserve ratio. The statutory deposit reserve ratio is determined

by the central bank and fixed in the form of a law. It is used for a certain ratio of

various financial institutions to deposit a certain amount of deposit reserve

63

according to the accepted deposits. The amount calculated according to the

statutory deposit reserve ratio is the statutory deposit reserve. The original

purpose of the statutory deposit reserve is to maintain the liquidity of bank assets,

improve the bank's liquidity, ensure the interests of depositors and their own

security, and prevent bank failures (Wenping, 2010).

Changes in the statutory deposit reserve ratio are inversely proportional to

changes in the bank's existing reserves and market money supply, and are directly

proportional to changes in the federal funds rate and short-term interest rates on

the market. Therefore, the central bank can adjust the statutory deposit reserve

ratio in response to economic prosperity and recession and the tightness of

monetary policy, and play a role in regulating finance.

5. Hypothesis 5：There is a significant influence of interest rate,exchange rate,GDP,

and money supply towards ROA in bank of China simultaneously.

Comparative data analysis this study, "There is a significant influence of interest

rate, exchange rate,GDP,and money supply towards ROA in China

simultaneously." According to the table, the value of the F statistic is 0.000, less

than 5%, also That is to say, the independent variables in the study also affect the

ROA, and there is a connection between them, so accept H5.

According to the data, the interest rate, exchange rate, GDP,money supply, affects

48.1% of the ROA, and the remaining 51.9% is affected by other factors.

64

CHAPTER V

CONCLUSIONS AND RECOMMENDATIONS

5.1 In conclusion

According to the T-test study results in this study, it can be concluded that the

independent variables in the study have certain influence on the dependent variables

of the study, which are summarized as follows:

1. Interest rate is one of the bank projects. It refers to the ratio of the amount of

interest to the amount of borrowed funds, that is, the principal, for a certain

period of time. The interest rates in bank of China are controlled by the state,

and the major banks can only fluctuate within a certain range of this control

value. In other words, within a certain range, the bank's interest rate can also

show the bank's profit.

2. Exchange rate refers to the ratio or price of a country's currency to another

country's currency. It is subject to the central bank. The major banks can

change within a certain range. Its changes affect the bank's profits to a certain

extent,affect the bank's ROA.

65

3. GDP has a significant impact on bank ROA.According to the research, ROA

will increase with GDP growth, and its growth rate will increase with GDP.

Therefore, it can be concluded that the increase of GDP leads to the growth of

ROA.

4. Money supply is composed of deposit currency and cash currency. It refers to

the country's currency stock at a certain point in time. That is to say, to a

certain extent, the money supply affects the bank's profit and limits the

customer.According to research, ROA will grow as the money supply

increases.

5. In this study, data and then analysis can be obtained. Interest rates, exchange

rates, GDP, and money supply have a significant impact on ROA.These four

independent variables affect the 48.1% change of ROA, while the other 51.9% of

the influencing factors are belonging to the factors not studied in this study.

5.2 Recommendations

After a series of research and analysis, I would like to suggest the following points

and opinions.

The specific recommendations are as follows:

1. China's banking industry

It is recommended that senior management should pay more attention to various

national policy information about the central bank, such as interest rates and

exchange rates, as well as national data, information, GDP, and money supply,

because these factors affect the bank’s profits to some extent, as early as possible.

Learn and plan your solution.

Due to the loose internal banks, the efficiency of banks has declined. It is

66

necessary to actively adjust the banking policies, actively respond to various

emergencies that can affect the company, and quickly identify internal problems

of banks, so that the bank's performance, profits, and assets will increase.

These research factors can affect the change of bank ROA to a certain extent. The

exchange rate affects the bank's profit, which affects the bank's ROA. Therefore,

the company should set up a group to study the bank data, and timely discover

and formulate the plan to solve it quickly.

2. Academic community

In order to get a better ROA, the company should formulate a plan to a certain

extent, create higher profits, strive for greater profits without reducing the

company's assets,study various government data, and work out the perfect data.

The program, in order to get a better ROA,this study aims to better develop the

bank.

3. Future researchers

Proposals for researchers who continue to delve into this research in the future:

1. Expand more bank data for analysis.

2. Add more independent variables to improve the stability of the research

project.

3. The number of research data should be more than seven, and more in-depth

research data. After expanding the research data and content analysis, future

researchers will have a deeper understanding of the bank ROA.

67

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71

APPENDIX-1

STATISTICAL RESULT

Table 4.1 Descriptive Statistics

Normality Test

Descriptive Statistics

Mean Std. Deviation N

ROA 1.0405 0.18998 56

Interest rate(x1) 2.3875 0.75548 56

Exchange rate(x2) 6.399871 0.26468 56

GDP(x3) 702848.686 119032.9634 56

Money supply(x4) 425285.4857 94714.55618 56

73

Fixed Test

ANOVAa

Model Sum of Squares df Mean

Square

F Sig.

Regression .660 4 .165 6.349 .000b

Residual 1.325 51 .026

Total 1.985 55

T-Test

Model Summaryb

Model R R

Square

Adjusted R Square Std. Error of the

Estimate

Durbin-Watson

1 0.767a 0.502 0.481 0.161201603178227 0.333

Multicollinearity Test

ROA Interest

rate

Exchange

rate

GDP Money

supply

Pearson

Correlation

ROA 1.000 .519 -.563 -.536 -.563

Interest

rate

.519 1.000 -.812 -.799 -.834

Exchange

rate

-.563 -.812 1.000 .679 .661

GDP -.536 -.799 .679 1.000 .670

Money

supply

-.563 -.834 .661 .670 1.000

74

Model Unstandardized

Coefficients

Standardized

Coefficients

t Sig. Collinearity

Statistics

B Std.

Error

Beta Tolerance VIF

(Constant)

3.290 2.917 1.128 .000

Interest rate(X1) .039 .052 .154 .743 .000 .303 3.29

5

Exchange

rate(X2)

-.357 .513 -.498 -.696 .04 .260 3.07

7

GDP(X3) -5.019

E-007

.000 -.314 -.387 .000 .200 5.33

3

Money

supply(X4)

7.011

E-007

.000 .350 .246 .006 .006 9.93

9

75

APPENDIX-2

RAW DATA

Bank name Year Intere

st rate

Exchang

e rate GDP

(Unit:100

Million

Yuan）

Money

supply

（Unit:10

0 Million

Yuan）

ROA(%)

Bank of China Limited 2012 3.25 6.1123 538580 308664.2 1.101735016

Bank of China Limited 2013 3.25 6.1332 592963.2 337291.05 1.131218457






Industrial and Commercial


ICBC

2012

3.25

6.0134

538580 308664.2 1.359749145



ICBC

2013

3.25

6.0663

592963.2 337291.05 1.38794926



ICBC

2014

3.25

6.1752

641280.6

348056.41 1.341096555

76



ICBC

2015

1.75

6.2977

685992.9

400953.44 1.250337686



ICBC

2016

1.75

6.6616

740060.8

486557.24 1.158091286



ICBC

2017

1.75

6.7701

820754.3

543790.15 1.101954772



ICBC

2018

1.75

6.6432

900309.0

551685.9

1.055039314

China Construction Bank 2012 3.25 6.1254 538580 308664.2 1.382963493

China Construction Bank 2013 3.25 6.1339 592963.2 337291.05 1.397786458






Hua Xia Bank 2012 3.3 6.3052 538580 308664.2 1.041638684

Hua Xia Bank 2013 3.3 6.0662 592963.2 337291.05 0.765550239

Hua Xia Bank 2014 3.3 6.1743 641280.6 348056.41 0.972972973

Hua Xia Bank 2015 1.95 6.2966 685992.9 400953.44 0.935643564

Hua Xia Bank 2016 1.95 6.6564 740060.8 486557.24 0.834745763

Hua Xia Bank 2017 1.95 6.7735 820754.3 543790.15 0.788844622

77

Hua Xia Bank 2018 1.95 6.6312 900309.0 551685.9 0.741697417

China EVERBRIGHT

BANK CO., LTD 2012

3.3 6.1165 538580 308664.2 1.035087719

China EVERBRIGHT

BANK CO., LTD 2013

3.3 6.1336 592963.2 337291.05 1.103305785

China EVERBRIGHT

BANK CO., LTD 2014

3.3 6.1736

641280.6 348056.41 1.054744526

China EVERBRIGHT

BANK CO., LTD 2015

1.95 6.2964

685992.9 400953.44 0.930599369

China EVERBRIGHT

BANK CO., LTD 2016

1.95 6.6566

740060.8 486557.24 0.753731343

China EVERBRIGHT

BANK CO., LTD 2017

1.95 6.7730

820754.3 543790.15 0.770171149

China EVERBRIGHT

BANK CO., LTD 2018

1.95 6.6329

900309.0

551685.9 0.783980583

China CITIC BANK 2012 3.3 6.1502 538580 308664.2 1.047297297

China CITIC BANK 2013 3.3 6.1632 592963.2 337291.05 1.076923077

China CITIC BANK 2014 3.3 6.1716 641280.6 348056.41 0.983091787

China CITIC BANK 2015 1.5 6.2956 685992.9 400953.44 0.8046875

China CITIC BANK 2016 1.5 6.6602 740060.8 486557.24 0.701517707

China CITIC BANK 2017 1.5 6.8017 820754.3 543790.15 0.75

China CITIC BANK 2018 1.5 6.6367 900309.0 551685.9 0.740432612

Agricultural Bank of China 2012 3.25 6.1054 538580 308664.2 1.09592145

Agricultural Bank of China 2013 3.25 6.1343 592963.2 337291.05 1.14217033


78





China Merchants Bank 2012 3.3 6.1528 538580 308664.2 1.328445748

China Merchants Bank 2013 3.3 6.1375 592963.2 337291.05 1.286069652






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