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Evaluation of the Competitiveness of China’s Commercial Banks Based on the G-CAMELS Evaluation System

Sustainability 2019, 11(6), 1791; https://doi.org/10.3390/su11061791

by Fangyuan Guan, Chuanzhe Liu^*, Fangming Xie and Huiying Chen

Reviewer 1: Anonymous

Reviewer 2: Anonymous

Reviewer 3: Anonymous

Reviewer 4: Anonymous

Sustainability 2019, 11(6), 1791; https://doi.org/10.3390/su11061791

Submission received: 28 January 2019 / Revised: 18 March 2019 / Accepted: 21 March 2019 / Published: 25 March 2019

Round 1

Reviewer 1 Report

This study adds the green indicator to form the G-CAMELS evaluation system over CAMEL to evaluate the competitiveness of Chinese commercial banks.

Paper lacks information about its basic case. As paper's basic case is G-CAMEL, paper should more focus on following points in building its case for G-CAMEL over traditional CAMEL.

1) Why is it important to include green credit in evaluation?

2) What is the level of green credit in Chinese banks balance sheets?

3) How would the higher- or lower-level of green credit would affect the overall performance of banks which traditional CAMEL can't capture and we need G-CAMEL?

4) What is green financial policy as authors mention it in paper?

Author Response

Response to Reviewers

Fangyuan Guan, Chuanzhe Liu, Fangming Xie, Huiying Chen

At first, we appreciate editors’ and reviewers’ valuable comments and suggestions which help us improve the paper significantly. Following these comments and suggestions, we revised the paper as follows.

Response to Reviewer 1 Comments

Point 1: Why is it important to include green credit in evaluation?

Response 1: Thanks for the suggestion. In order to emphasize the importance of including green credit, we have added the following content.

In line 32-45, ‘‘Sustainable finance, as a term, first appeared in a UNEP report to finance ministers. Literally, sustainable finance is a forward-looking development model that meets the needs of present generations without compromising the needs of future generations. Since the sustainable finance was put forward, many countries all over the world have taken action. The German government has given a certain discount and interest rate to the green project loan; the EU has stipulated that the green credit and securitization products can enjoy the tax concession; The British government has adopted the loan guarantee Scheme to support small and medium-sized enterprises, especially environmentally friendly ones. And in China, since the 18th National Congress of the Communist Party of China, green development has been an important issue for China's transformation and an important trend for future economic development. It can help to promote supply-side structural reforms and improve the quality of economic growth. The Fifth Plenary Session of the 18th CPC Central Committee of the Communist Party of China (CPC) stressed that the green development, as an important concept of the development of our country, is a basic idea of the economic and social development during the 13th Five-Year Plan period and even the longer period.’’

In line 57-71, ‘’The G-CAMELS system is an extension and development of the camel rating system. Taking environmental factors as a separate part of the system magnifies the impact of the financial industry on the environment, thereby, stimulates banks to assume social responsibility and achieve sustainable development. It enriches the relevant research of CAMELS. The existing research mainly uses CAMELS for empirical analysis, and has not considered innovating CAMELS. Although the green credit policy has already been proposed in China, commercial banks still lack deep understanding of the importance of relevant policies to achieve sustainable development. And the imperfect incentive mechanism has made banks less active in implementing environmental policies. It is necessary to establish a bank competitiveness evaluation system considering environmental factors to raise awareness of social responsibility and evaluate competitiveness of banks from a new perspective.

In line 75-79, ‘‘it is worth thinking that this article advances the understanding of sustainable development. In general, sustainability can be understood as philanthropy act, creating value that protects the welfare of local communities. But from the perspective of the bank's point of view, sustainable development can not only bring environmental benefits, but also enables banks to increase their profit through the bank's business operations or financial innovation. It is a win-win result. ‘’

Point 2: What is the level of green credit in Chinese banks balance sheets?

Response 2: Thanks for the suggestion. Due to the incomplete data on the level of green credit in Chinese banks balance sheets, we added the green credit balance of 21 major banks in Note 1.

Due to the incomplete data, green credit balances for 21 major banks in China are listed here: 4.85 trillion in June 2013; 5.72 trillion in June 2014; 6.64 trillion in June 2015; and 7.26 trillion in June 2016; In June 2017, it was 8.3 trillion. Source: bank of China Insurance Regulatory Commission, http://www.cbrc.gov.cn/chinese/newIndex.html.

China's 21 major banks refer to China Development Bank, Export-Import Bank of China, Agricultural Development Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of Communications, CITIC Bank, China Everbright Bank, Huaxia Bank, Guangdong Development Bank, Ping an Bank, China Merchants Bank, Pudong Development Bank, Industrial Bank, Minsheng Bank, Hengfeng Bank, Zhejiang Commercial Bank, Bohai Sea Bank, China Post savings Bank.

Point 3: How would the higher- or lower-level of green credit would affect the overall performance of banks which traditional CAMEL can't capture and we need G-CAMEL?

Response 3: Thanks for the suggestion. We added the relevant content.

In line 197-201, ’’in the original CAMELS system, green credit was not specifically mentioned as part of bank credit. With the national attention to environmental protection, green credit, as an indicator of green development, is independent from the original bank credit, which constitutes a new system. This actually magnifies the impact of the environment on economic development and reflects the country's policy orientation. ‘’

In line 258-265, ‘’since the reform and opening-up, China's economy is developing at an astonishing speed, accompanied by the continuous deterioration of the environment. In order to improve the environmental problems, the Chinese government has also made great efforts. In 2007, the green credit policy was officially launched. In 2015, the "Belt and Road" policy put special emphasis on severe environmental governance issues. The concept of "green development" was proposed in the 13th five-year Plan in 2016, and the G20 Summit that held in Hangzhou in September 2016 included "green finance" for the first time. From the current situation, it is very necessary to introduce "green index" into CAMELS system.’’

Point 4: What is green financial policy as authors mention it in paper?

Response 4: Thanks for the suggestion. We added the relevant content in the Note 2 and Note 3.

Green finance, also known as sustainable finance, refers to adjusting the management concept and business process of financial institutions from the perspective of environmental protection. It changes the incentive mechanism of resource allocation, and promoting sustainable development, including the development of financial industry and social economy. Green finance balances the financial activities and environmental protection and guides all economic entities to carry out green environmental protection projects.

Author Response File: Author Response.pdf

Reviewer 2 Report

The article is interesting and innovative, however, there are certain aspects that I think that should be taken into account for its publication:

1.- The introduction refers to the green indicator only in China, and it would be interesting to consider other studies and / or authors and different countries. The papers on sustainable finance today are numerous.

2.- The bibliography in this sense should consider more CAMELS applications and more current ones. In addition to empirical studies or analysis of sustainability indicators.

Author Response

Response to Reviewers

Fangyuan Guan, Chuanzhe Liu, Fangming Xie, Huiying Chen

Response to Reviewer 2 Comments

Point 1: The introduction refers to the green indicator only in China, and it would be interesting to consider other studies and / or authors and different countries. The papers on sustainable finance today are numerous.

Response 1: Thanks for the suggestion. In order to make the introduction more comprehensive, we have made substantial revision to the introduction in line 32-83.

Sustainable finance, as a term, first appeared in a UNEP report to finance ministers. Literally, sustainable finance is a forward-looking development model that meets the needs of present generations without compromising the needs of future generations. Since the sustainable finance was put forward, many countries all over the world have taken action. The German government has given a certain discount and interest rate to the green project loan; the EU has stipulated that the green credit and securitization products can enjoy the tax concession; The British government has adopted the loan guarantee Scheme to support small and medium-sized enterprises, especially environmentally friendly ones. And in China, since the 18th National Congress of the Communist Party of China, green development has been an important issue for China's transformation and an important trend for future economic development. It can help to promote supply-side structural reforms and improve the quality of economic growth. The Fifth Plenary Session of the 18th CPC Central Committee of the Communist Party of China (CPC) stressed that the green development, as an important concept of the development of our country, is a basic idea of the economic and social development during the 13th Five-Year Plan period and even the longer period. As a key method for the comprehensive evaluation of financial institutions by financial regulatory authorities, the CAMELS rating system (CAMELS)^[1] is made by the Federal Reserve System and other regulators in November 1979 and revised by the Federal Financial Institutions Examination Council in1996. Given its effectiveness, CAMELS has been adopted by most countries since its promulgation until today. However, as the financial industry's influence on the environment grows, CAMELS has had a certain age limitations for now. To overcome limitations and meet the requirements of China's economic development, this study has added the green indicator based on the original CAMELS to form the G-CAMELS system. After considering the possible influence of banks on the environment, the G-CAMELS evaluation system can comprehensively measure the situation of financial institutions. Therefore, on the basis of the theoretical framework of G-CAMELS, this study constructs the competitiveness evaluation system of commercial banks and uses 16 listed banks in China to conduct an empirical analysis.

The G-CAMELS system is an extension and development of the camel rating system. Taking environmental factors as a separate part of the system magnifies the impact of the financial industry on the environment, thereby, stimulates banks to assume social responsibility and achieve sustainable development. It enriches the relevant research of CAMELS. The existing research mainly uses CAMELS for empirical analysis, and has not considered innovating CAMELS. Although the green credit policy has already been proposed in China, commercial banks still lack deep understanding of the importance of relevant policies to achieve sustainable development. And the imperfect incentive mechanism has made banks less active in implementing environmental policies. It is necessary to establish a bank competitiveness evaluation system considering environmental factors to raise awareness of social responsibility and evaluate competitiveness of banks from a new perspective.

Since the original camel rating system examines the comprehensive situation of the bank, the framework of the camel rating system can provide a comprehensive evaluation of the competitiveness of the bank. The G-CAMELS system has added an easy-to-quantitative green indicator that reflects the bank's environmental impact. While comprehensively examining the bank's situation, it also emphasizes environmental factors and embodies the concept of green development. Then, this paper uses quantitative methods to build an indicator system and rank the competitiveness of banks, avoiding subjectivity. In addition, by comparing CAMELS and G-CAMELS system, we can see the influence of green index on the change of bank competitiveness, and provide suggestions for all kinds of banks. It is worth thinking that this article advances the understanding of sustainable development. In general, sustainability can be understood as philanthropy act, creating value that protects the welfare of local communities. But from the perspective of the bank's point of view, sustainable development can not only bring environmental benefits, but also enables banks to increase their profit through the bank's business operations or financial innovation. It is a win-win result.

The first part of the paper is the introduction, the second part is the literature review, the third part is the research method, the fourth part is the index system construction and data preprocessing, the fifth part is the empirical analysis, the sixth part is the result, and the seventh part is conclusion and outlook.

Point 2: The bibliography in this sense should consider more CAMELS applications and more current ones. In addition to empirical studies or analysis of sustainability indicators.

Response 2: Thanks for the suggestion. In this regard, we expanded the literature review on camel rating system in 138-186 and revised the references in 593-650.

First, we rearranged the literature review and added the sector about camel rating system.

The domestic research on CAMELS focuses on using the said system for credit evaluation or business performance evaluation and comparing the competitiveness of banks. Bao(2018)^[9]used CAMELS to analyze the credit situation of the Agricultural Bank of China in 2016 and made targeted recommendations. Tao(2017)^[10]used it to quantitatively analyze the operating performance of the Bank of Beijing from 2012 to 2016, gave reasons, and made relevant recommendations. On the basis of the CAMELS framework, Zhou (2016)^[11] used eight joint-stock commercial banks as samples to evaluate business performance, analyzed the reasons, and proposed targeted measures. Li and Song (2014)^[12] used this system to compare the operating performance of state-owned commercial banks and joint-stock banks. Li and Ma (2013)^[13] innovated CAMELS, added new indicators, obtained management levels by quantitative methods, calculated total scores by factor analysis, and then compared the scores of China and the United States, thereby gaining inspiration. Xie (2013)^[14] used CAMELS as the basis for calculating the competitiveness score of banks and compared the score rankings of 13 banks. Banks can enhance their competitiveness by enhancing management level and profitability, and Xie (2013)^[14] made recommendations on the basis of this finding.

There are three main aspects in the study abroad of camel rating system: first, predict bankruptcy for the company. Barr RS et al^[15] use CAMELS system to identify the bankrupt company in 1993. Apostolos et al (2011)^[16] used the camel rating system as a basis to explain the signs of Lehman Brothers before bankruptcy and proved that the incident should have been foreseen. CAMELS is also used by banks to evaluate bank performance. G Vousinas (2018)^[17] used the camel rating model to evaluate the performance of Greek systemic banks in the sovereign debt crisis. Bastan et al (2016)^[18] used to evaluate the robustness of the Iranian banking system. Hasan et al (2011)^[19] applied the CAMELS framework to the Turkish banking industry and discussed the performance trends of the pre-crisis and post-crisis situations in the Turkish. Later, the researchers tried to combine other methods based on the CAMELS evaluation system. Dincer et al (2015)^[20] used the annual data from 2004 to 2014 to analyze 20 deposit banks in Turkey and built a camel rating system with 21 different indicators. Based on this, multiple nominal Logistic regression analysis is established. It found that asset quality, management quality and market risk sensitivity had an impact on credit ratings, while the ratios related to capital adequacy ratio and returns were not significantly related. Ali Shaddady, Tomoe Moore (2018)^[21] applied the camel scoring system to quantile regression and found that stricter capital regulation is positively correlated with bank stability, while stricter restrictions, deposit insurance and over-regulation seem to have a negative impact on bank stability.

With regard to the selection of indicators of camel rating system, capital adequacy is used to measure the bank's final liquidity, in order to ensure that commercial banks can withstand the risk of bad debt losses, and is an important criterion for measuring the bank's operational stability. Fang (2011)^[22] selected the indicator of capital adequacy ratio, while Lu (2009)^[23] selected four indicators: core capital adequacy ratio, shareholder equity ratio, equity-to-loan ratio, and weighted risk assets to total assets. The quality of assets determines the stability and security of commercial banks. Hasan (2011)^[19^] selected financial assets (Net)/Total Assets, Total Loans and Receivables/Total Assets, and Permanent Assets/Total Assets to measure asset quality. Chen (2014)^[²⁴^] chose non-performing loan ratio and provision coverage ratio. Dash M, Das A (2009)^[2⁵^] chooses return on net assets, operating profit and average working fund ratio, after-tax profit and total assets ratio to measure profitability; Chen (2014) ^[2⁴^]selects weighted average return on assets and net profit growth. In addition, sensitivity to market risk can be divided into sensitivity to interest rate risk and sensitivity to exchange rate risk. Two methods are used to measure the level of management quality. One is to use the BSS model proposed by Barr R S et al^[15] in 1993, the other is to select some indexes which can reflect the quality of management, for instance, Christopoulos AG et al^[26^] used management expenses/sales to measure the quality of management; Chen (2014)^[2⁴^] selects the cost-to-income ratio and brand value. Because the selection of indicators varies from country to country, the literature on the selection of indicators is mainly used in China based on the assurance that the meaning of CAMELS can be correctly reflected.

Second, we revised the references.

[1] Gary Whalen, James B. Thompson, Using Financial Data to Identify Changes in Bank Condition,Economic Review, Federal Reserve Bank of Cleveland Economic Review, issue Q II, pp. 17-26.

[2] Jeucken M. Sustainable finance and banking: The financial sector and the future of the planet[M]. Routledge, 2010.[3] Grade T E, Allenby B R. Industry Ecology[J]. 2003.

[4] Fatemi A M, Fooladi I J. Sustainable finance: A new paradigm[J]. Global Finance Journal, 2013, 24(2): 101-113.

[5] Yue Yunkang. Research on performance Evaluation of Commercial Banks in China-Analysis based on structural equation Model [J]. Technology and Industry, 2010, 10 (06): 66 / 71.

[6] Liu Chunyu, Zhang Han. The evaluation of the competitiveness of commercial banks _ based on 16 commercial banks in China[J]. Gansu Finance,2018 (12):50-55.

[7] Deng Hongzheng. The structure and promotion of core competence of small and medium-sized commercial banks [J]. Productivity study, 2010 (08): 63 / 64 106.

[8] Fang Xianming, Su Xiaojun, Sun Li. Research on the Competitiveness level of China's Commercial Banks-an Analysis based on the data of 16 listed Commercial Banks from 2010 to 2012 [J]. Journal of Central University of Finance and Economics, 2014 (03): 31 / 38.

[9] Bao Xing. Credit Analysis of Commercial Banks Based on CAMEL Model——Taking Agricultural Bank of China as an Example [J]. Shopping Mall Modernization, 2018(04): 114-115.

[10] Tao Xiaolan. Evaluation of Bank of Beijing's Business Performance Based on Camel Rating System[J]. Tax, 2017(15): 127.

[11] Zhou Changgui.Evaluation of Operational Performance of Joint-stock Commercial Banks——Based on the Analysis of Camel Rating System[J].Fujian Finance,2016(11): 63-66.

[12] Li Xiang, Song Liangrong. Comparison of the performance of state-owned commercial banks and joint-stock banks based on CAMEL rating system [M]. Finance and Accounting News, 2012 (8): 47.

[13] Li Wenying, Ma Guangqi comparison on the competitiveness of commercial banks - CAMEL-based framework for improved [J] Harbin University of Commerce (Social Science Edition), 2013 (03): 12-20.

[14] Xie Weiwei. Analysis of Core Competitiveness Evaluation and Strategy Selection of Chinese Listed Banks[J]. Modern Business and Industry, 2013, 25(05): 9-10.

[15] Barr R S, Seiford L M, Siems T F. Forecasting bank failure: A non-parametric frontier estimation approach[J]. Recherches Économiques de Louvain/Louvain Economic Review, 1994, 60(4): 417-429.

[16] Christopoulos A G, Mylonakis J, Diktapanidis P. Could Lehman Brothers' collapse be anticipated? An examination using CAMELS rating system[J]. International Business Research, 2011, 4(2): 11.

[17] Vousinas G. Analyzing the Financial Performance of Greek Systemic Banks During Crisis. An Application of Camels Rating System[J]. 2018.

[18] Bastan M, Mazrae M B, Ahmadvand A. Dynamics of banking soundness based on CAMELS rating system[C]//The 34th International Conference of the System Dynamics Society. Delft, Netherlands. 2016.

[19] Hasan Dincer, Gulsah Gencer, Nazife Orhan, Kevser Sahinbas. A Performance Evaluation of the Turkish Banking Sector after the Global Crisis via CAMELS Ratios [J]. Procedia - Social and Behavioral Sciences,2011,Volume 24:1530-1545.

[20] Dincer H, Yuksel S, Hacioglu U. CAMELS-based Determinants for the Credit Rating of Turkish Deposit Banks [J]. International Journal of Finance & Banking Studies, 2015, 4(4): 1

[21] Ali Shaddady, Tomoe Moore. Investigation of the effects of financial regulation and supervision on bank stability: The application of CAMELS-DEA to quantile regressions [J]. Journal of International Financial Markets, Institutions and Money, 2018, ISSN 1042-4431.

[22] Fang Changfeng. An Empirical Study on the Performance Evaluation System of Commercial Banks[J].Taxation and Economy,2011(04): 33-38.

[23] Lu Lei. Research on the competitiveness of Chinese commercial banks based on CAMEL model [D]. East China Normal University, 2009.

[24] Chen Xiangming. Research on the Competitiveness of 16 Listed Banks in China——Based on CAMELS Rating System [D]. University of International Business and Economics, 2014.

[25] Dash M, Das A. A CAMELS analysis of the Indian banking industry[J]. Available at SSRN 1666900, 2009.

[26] Christopoulos A G, Mylonakis J, Diktapanidis P. Could Lehman Brothers' collapse be anticipated? An examination using CAMELS rating system[J]. International Business Research, 2011, 4(2): 11.

[27] Giroud X, Mueller H M. Corporate governance, product market competition, and equity prices[J]. The Journal of Finance, 2011, 66(2): 563-600.

[28] Coles J L, Li Z F, Wang Y A. Industry tournament incentives[J]. 2013.

[29] Li Z F. Mutual monitoring and corporate governance[J]. Journal of Banking & Finance, 2014, 45: 255-269.

[30] He Lingyun, Wu Chen, Zhong Zhangqi, wish Jingran. Green Credit, Internal and external policies and Competitiveness of Commercial Banks: an empirical study based on 9 listed Commercial Banks [J]. Financial Economics Research, 2018, 33 (01): 91 / 103.

Author Response File: Author Response.pdf

Reviewer 3 Report

Review on Sustainability-445239

„Evaluation of the Competitiveness of China’s Commercial Banks Based on the G-CAMELS Evaluation System ‒ ‒ ‒ Taking 16 Listed Banks as Examples“

Thanks to the Authors and Editors of the Journal of Sustainability for the opportunity to read and review the manuscript of ‘Evaluation of the Competitiveness of China’s Commercial Banks Based on the G-CAMELS Evaluation System ‒ ‒ ‒ Taking 16 Listed Banks as Examples’.

Although I definitely believe that the topic is worth investigating, I cannot recommend publication of the paper. The analysis has several flaws, which make it unsuitable for publication in its current form. I provide more details below, which can hopefully of guidance to the Authors. I wish them good luck with their work.

Our suggestions:

· Title – The title can be shortened. I recommend removing the second part (after the three hyphens).

· Methodology – the article lacks discussion about the limitations of the CAMEL model applied for calculating banks’ competitiveness. The model is often classified as one of the Early Warning Systems used by supervisory institutions to identify organisations in danger of bankruptcy. The Authors fail to justify why they chose the CAMEL model, rather than one of other models used by supervisory institutions.

· The Authors do not discuss alternative concepts used in their field of research.

· The limitations of the ranking models and the variable selection needed to be added to the discussion. The banks were analysed using the linear ordering method, which allow to rank objects with reference to the ordering criterion adopted. But for example such methods could produce ‘‘rank reversal’’ outcomes.

· The choice of weights is a crucial element of the research. Perhaps it is worth considering a subjective, expert method of selecting weights, which is regarded to be far more suitable than statistical methods.

· The criteria for selecting banks for the research need to be described in the Methodology section.

· The connections between sustainable development and banking date back to the 1990s, when banks begun to consider environmental requirements: either directly, in their operational activities, or indirectly, in their products and services. Sustainability in the banking industry has also been understood as philanthropic acts, whereby banks create values that protect the well-being of local communities. The article does not specify, why the “G green” indicator includes only one area of sustainability-related banking operation. The issue requires an explanation.

· A similar comment is valid for the indicator „C capital adequacy”. Why did the Authors choose this indicator over the generally used ones, such as Common Equity Tier 1, Tier 1 and TCR?

· Empirical analysis p. 5 lines 163-166. Sample size is extremely important in the case of the BSS model. The sample used in the research may prove insufficient. It might be better to calculate the value of the indicator for all the banks in the sector, and on that basis evaluate the efficiency of the banks included in the research. Please note, that also in this method including or excluding an item may influence the efficiency indicators of a bank. The above needs to be explained in the article.

Furthermore, the inputs and outputs used in the research have not been defined.

Minor issues:

· When using the CAMEL model, it is advisable to name its authors:

Gary Whalen, James B. Thompson, Using Financial Data to Identify Changes in Bank Condition, Economic Review, Federal Reserve Bank of Cleveland Economic Review, issue Q II, pp. 17-26.

· References should be indicated by a numeral or numerals in square brackets, e.g., [1] or [2,3], or [4–6].

· The References need to be prepared according to the requirements of the Journal – the paper in its current form lacks DOI, ISBN numbers, etc.

Comments for author File: Comments.pdf

Author Response

Response to Reviewers

Fangyuan Guan, Chuanzhe Liu, Fangming Xie, Huiying Chen

Response to Reviewer 3 Comments

Point 1: Title – The title can be shortened. I recommend removing the second part (after the three hyphens).

Response 1: Thanks for the suggestion. We have shortened the title. The revised title is ‘’Evaluation of the Competitiveness of China's Commercial Banks Based on the G-CAMELS Evaluation System’’.

Point 2: Methodology – the article lacks discussion about the limitations of the CAMEL model applied for calculating banks’ competitiveness. The model is often classified as one of the Early Warning Systems used by supervisory institutions to identify organizations in danger of bankruptcy. The Authors fail to justify why they chose the CAMEL model, rather than one of other models used by supervisory institutions.

Response 2: Thanks for the suggestion. We made the following revisions.

First, we added the limitations of CAMELS rating system in the conclusion and prospect. In line 564-567, ‘’the main limitations are as follows. False accounting by financial institutions leads to errors in assessment; management personnel quality assessment is subjective and complex; CAMELS cannot calculate expected risks; some indicators can only be used for post-mortem analysis and cannot be predicted.’’

Second, we explained why we choose the CAMELS model rather than other models used by supervisory institutions. In line 188-196, ‘’CAMELS system is primarily used for financial institution ratings. Institutions with low ratings indicate that they are in poor business or have serious potential crises. And these institutions are less sustainable and less competitive. Institutions with better ratings indicate that they have sustainable development capabilities and are more competitive. Just because of the positive relationship between the level of rating and the competitiveness of banks, it is feasible to use the rating system to evaluate the competitiveness of banks. Among many rating systems, CAMELS is generally accepted by countries all over the world because of its high emphasis on safety and risk, comprehensive perspective, availability of indicator data, and the high priority of the Federal. Therefore, this paper takes this framework to determine the competitiveness of banks. ‘’

Point 3: The Authors do not discuss alternative concepts used in their field of research.

Response 3: Thanks for the suggestion. We made the following explanation.

First, we explained why we choose the CAMELS model rather than other models used by supervisory institutions. In line 188-196, ‘’CAMELS system is primarily used for financial institution ratings. Institutions with low ratings indicate that they are in poor business or have serious potential crises. And these institutions are less sustainable and less competitive. Institutions with better ratings indicate that they have sustainable development capabilities and are more competitive. Just because of the positive relationship between the level of rating and the competitiveness of banks, it is feasible to use the rating system to evaluate the competitiveness of banks. Among many rating systems, CAMELS is generally accepted by countries all over the world because of its high emphasis on safety and risk, comprehensive perspective, availability of indicator data, and the high priority of the Federal. Therefore, this paper takes this framework to determine the competitiveness of banks. ‘’

Second, we discussed the index selection in the G-CAMELS. In line 169-186,’’With regard to the selection of indicators of camel rating system, capital adequacy is used to measure the bank's final liquidity, in order to ensure that commercial banks can withstand the risk of bad debt losses, and is an important criterion for measuring the bank's operational stability. Fang (2011)[22] selected the indicator of capital adequacy ratio, while Lu (2009)[23] selected four indicators: core capital adequacy ratio, shareholder equity ratio, equity-to-loan ratio, and weighted risk assets to total assets. The quality of assets determines the stability and security of commercial banks. Hasan (2011)[19] selected financial assets (Net)/Total Assets, Total Loans and Receivables/Total Assets, and Permanent Assets/Total Assets to measure asset quality. Chen (2014)[24] chose non-performing loan ratio and provision coverage ratio. Dash M, Das A (2009)[25] chooses return on net assets, operating profit and average working fund ratio, after-tax profit and total assets ratio to measure profitability; Chen (2014) [24]selects weighted average return on assets and net profit growth. In addition, sensitivity to market risk can be divided into sensitivity to interest rate risk and sensitivity to exchange rate risk. Two methods are used to measure the level of management quality. One is to use the BSS model proposed by Barr R S et al[15] in 1993, the other is to select some indexes which can reflect the quality of management, for instance, Christopoulos AG et al[26] used management expenses/sales to measure the quality of management; Chen (2014)[24] selects the cost-to-income ratio and brand value. Because the selection of indicators varies from country to country, the literature on the selection of indicators is mainly used in China based on the assurance that the meaning of CAMELS can be correctly reflected.’’

Point 4: The limitations of the ranking models and the variable selection needed to be added to the discussion. The banks were analyzed using the linear ordering method, which allow to rank objects with reference to the ordering criterion adopted. But for example such methods could produce ‘‘rank reversal’’ outcomes.

Response 4: Thanks for the suggestion. We added the limitations of the ranking models and variable selection to the conclusion and prospect.

In line 567-574, ‘’second, combined with China's national conditions, this article selects indicators based on literature. But the variables may not fully reflect the bank's information. For example, in most of the literature, capital indicators include capital adequacy ratios or core Tier 1 capital adequacy ratio indicators. However, capital has an indicator of capital adequacy ratio in the initial established indicator system, and it is deleted after factor analysis. The cause needs further discussion.

Third, although the linear ordering method used in this paper is easy to operate, but it does not have stability. Further discussion can try to use other sorting methods to correct the results. This article is limited to length and is no longer covered.’’

Point 5: The choice of weights is a crucial element of the research. Perhaps it is worth considering a subjective, expert method of selecting weights, which is regarded to be far more suitable than statistical methods.

Response 5: Thanks for the suggestion. We added relevant content.

First, we adopted the entropy weight method. It has several advantages. In line 211-214, ’’As an objective weighting method, the entropy weight method has a theoretical basis. Compared with subjective weighting method, it has relatively high degree of credibility and precision. It can also profoundly reflect different abilities of indicators and the calculation is very simple. ‘’

Second, objective weighting method does not reflect the degree of attention that the evaluator attaches to different indicators. So it will be interesting to use subjective weighting method. However, the paper is limited to space. This method is no longer used for analysis. And we added it to the prospect. In line 574-576, ‘’the paper uses the objective weighting method. Further research can try to use the expert scoring method to weight and observe how the score results change. ‘’

Point 6: The criteria for selecting banks for the research need to be described in the Methodology section.

Response 6: Thanks for the suggestion. We added the explanations of sample banks selection.

In line 316-328, ‘’Due to the late listing of Chinese banks, the sample selected commercial banks that were listed before 2013, in order to ensure the integrity of the data. The sample includes five state-owned commercial banks, eight joint-stock commercial banks and three local commercial banks. These three types are the main types of commercial banks in China. State-owned banks refer to Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, China Bank of Communications; joint-stock commercial banks refer to CITIC Bank, China Merchants Bank, Shanghai Pudong Development Bank, China Minsheng Bank, Industrial Bank, China Everbright Bank, Ping An Bank, Hua Xia Bank; local commercial banks refer to Bank of Beijing, Bank of Nanjing, Bank of Ningbo. These 16 listed banks have strong indications and representations for the entire banking and financial industry in China. It is worth noting that Industrial Bank is the first and only bank in China to announce the adoption of the Equator Principles in project financing. Therefore, the green credit business in Industrial Bank has developed rapidly and accounted for a relatively large proportion.’’

Point 7: The connections between sustainable development and banking date back to the 1990s, when banks begun to consider environmental requirements: either directly, in their operational activities, or indirectly, in their products and services.

Response 7: Thanks for the suggestion. We added the explanations of sample years selection.

In line 309-315, ‘’ in 1995, the State Environmental Protection Agency issued a document regarding the protection of ecological resources and pollution prevention as one of the factors considered for bank loans. In 2007, the green credit policy was formally put forward. But at this time, the domestic standards are different from international standards, and the standards among the departments are not uniform, so there is "waste of resources". Data disclosure related to the sustainable development is very rare. In 2013, the CBRC unified the statistics caliber of green credit. In order to ensure consistency of statistical caliber and availability of data, the year selected in this paper is 2013 to 2017 for a total of 5 years. ‘’

Point 8: Sustainability in the banking industry has also been understood as philanthropic acts, whereby banks create values that protect the wellbeing of local communities. The article does not specify, why the “G green” indicator includes only one area of sustainability-related banking operation. The issue requires an explanation.

Response 8: Thanks for the suggestion. We added the following content.

In line 75-79,’’It is worth thinking that this article advances the understanding of sustainable development. In general, sustainability can be understood as philanthropy act, creating value that protects the welfare of local communities. But from the perspective of the bank's point of view, sustainable development can not only bring environmental benefits, but also enable banks to increase their profit through the bank's business operations or financial innovation. It is a win-win result.’’ In other words, the purpose of this paper is to compare the competitiveness of banks. Only those related to banking operations are selected in the selection of sustainable development indicators.

In line 302-307, ‘’on the basis of camel rating system, in order to better evaluate the competitiveness of banks, this paper adds green indicators that banks can help the society to achieve sustainable development. So these green indicators are related to the operation of banking business. The green indicators related to banking also include green financial products and green financial instruments, except for the green credit. However, the standards of these indicators have not yet been unified and the data disclosure is less. Therefore, this paper does not introduce these indicators.’’

Point 9: A similar comment is valid for the indicator ‘’C capital adequacy”. Why did the Authors choose this indicator over the generally used ones, such as Common Equity Tier 1, Tier 1 and TCR?

Response 9: Thanks for the suggestion. We added the limitations of the variable selection to the conclusion and respect.

In line 567-572,’’combined with China's national conditions, this article selects indicators based on literature. But the variables may not fully reflect the bank's information. For example, in most of the literature, capital indicators include capital adequacy ratios or core Tier 1 capital adequacy ratio indicators. However, capital has an indicator of capital adequacy ratio in the initial established indicator system, and it is deleted after factor analysis. The cause needs further discussion. ’’

Point 10: Empirical analysis p. 5 lines 163-166. Sample size is extremely important in the case of the BSS model. The sample used in the research may prove insufficient. It might be better to calculate the value of the indicator for all the banks in the sector, and on that basis evaluate the efficiency of the banks included in the research. Please note that also in this method including or excluding an item may influence the efficiency indicators of a bank. The above needs to be explained in the article.

Response 10: Thanks for the suggestion.

First, China's national conditions are special. In line 316-325,‘’Due to the late listing of Chinese banks, the sample selected commercial banks that were listed before 2013, in order to ensure the integrity of the data. The sample includes five state-owned commercial banks, eight joint-stock commercial banks and three local commercial banks. These three types are the main types of commercial banks in China. State-owned banks refer to Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, China Bank of Communications; joint-stock commercial banks refer to CITIC Bank, China Merchants Bank, Shanghai Pudong Development Bank, China Minsheng Bank, Industrial Bank, China Everbright Bank, Ping An Bank, Hua Xia Bank; local commercial banks refer to Bank of Beijing, Bank of Nanjing, Bank of Ningbo. These 16 listed banks have strong indications and representations for the entire banking and financial industry in China.’’

Second, we added it to the prospect. In line 576-580,’’in the BSS model, it will be better to select more samples. But in view of the late listing time of Chinese banks and the small number of listed banks, this paper only selected 16 banks. In addition, the BSS model has its own limitations. For example, whether the selection of variables is comprehensive will also affect the efficiency of bank management. Therefore, how to more accurately quantify the quality of management needs further research.’’

Point 11: The inputs and outputs used in the research have not been defined.

Response 11: Thanks for the suggestion. We gave the definitions of the inputs and outputs.

In line 348-357, ‘’Among them, the number of employees refers to the number of all employees employed by a company; the salary expenses correspond to the employee benefits payable on the balance sheet; fixed assets and depreciation can be understood as the original value of fixed assets; non-interest expenses include salaries and welfare expenditures, asset expenses and other expenses; interest expenses include interest expenses on loans and interest on deposits; investment corresponds to held-to-maturity investments, long-term equity investments, accounts receivable investments and real estate investments in the balance sheets of commercial banks. And deposits refer to the monetary funds deposited in the bank; interest-earning assets refer to assets in the form of loans, investments, etc., which can bring income to the bank; total interest income refers to the fact that the enterprise provides funds for others to use but does not constitute an equity investment, or refers to the income from the use of funds from others.’’

Author Response File: Author Response.pdf

Reviewer 4 Report

attached

Comments for author File: Comments.pdf

Author Response

Response to Reviewers

Fangyuan Guan, Chuanzhe Liu, Fangming Xie, Huiying Chen

Response to Reviewer 4 Comments

Point 1: In the abstract, you should list your findings and suggestions.

Response 1: Thanks for the suggestion. According to this point, we have added the abstract in line 9-29. The revised abstract is as follows.

Abstract: On the basis of the original camel rating system, this study added the green indicator and formed the G-CAMELS evaluation system to comprehensively evaluate the competitiveness of commercial banks. It followed China's current requirements for the sustainable development of commercial banks. Taking 16 listed banks as examples, the study constructed the G-CAMELS competitiveness evaluation system of commercial banks. Factor analysis was used to carry out the empirical study on the competitiveness evaluation system. This study gives weight to time and each index by using the equivalent series formula and entropy weight method. A dynamic evaluation model was then established, which created a comprehensive ranking of the average competitiveness of the 16 listed banks from 2013 to 2017. Cluster analysis was also carried out. In addition, according to the same steps as above, the comprehensive ranking of the average competitiveness based on the CAMELS evaluation system was obtained. The two ranking systems were compared and analyzed briefly. It is found that with the entropy weight method, in the G-CAMELS system, the two highest weights are profitability and green indicators, and the lowest two are management quality levels and sensitivity to market risks. Compared with the original CAMELS system, the newly formed system will increase the competitiveness of state-owned banks and have little impact on the competitiveness of joint-stock banks. In order to improve the competitiveness of banks, state-owned banks should innovate their banking business and continue to implement the green credit policy; joint-stock banks continue to seize the opportunity of green credit, expand profitability while paying attention to safety; in addition, the government could consider relaxing green credit standards for city commercial banks to ease pressure on banks.’’

Point 2: In the introduction, you need to give your contributions right after the motivation part and findings. You can talk about the following contributions: What insights can you provide based on your finding? Do they push forward our understanding? What should we do with your research? Do you have any suggestions to improve the current regulation or practice? Adding the above discussion and extend your literature review may help you make more contributions and position your contributions better.

Response 2: Thanks for the suggestion. According to this point, we add the significance of the research and contribution in the introduction. In addition, we have carefully revised the literature review section. We have not only added related literatures, but also rearranged all literatures. And at the end of the introduction, the structure of the article is added.

First, according to your suggestion, we have defined our contribution more clearly in line 57-79.

Second, we add the structure of this article at the end of the introduction in line 80-83.

Third, we add the literature review in line 85-186 and rearrange the literature review. And it is divided into three parts.

1. About green credit

In the early 1980s, the US Congress passed the “Super Fund Act”, which made the banking industry begin to take environmental risks into consideration. It also made the banking industry realize that finance is of great significance to environmental protection and human social development. After that, developed countries have begun to study the relevant theories. Marcel Jeucken (2002) provides a more comprehensive explanation of sustainable financing in the Sustainable Finance and Banking. He believes that commercial banks can take advantage of their huge advantages in resource allocation, and guide the sustainable development of the economy and society through various credit policies and the means of deployment. For example, when banks provide loans to sustainable commercial projects, they can promote the development of sustainable projects by charging lower fees. To better implement sustainable finance theory, IFC - International Finance Corporation(IFC) and ABN Amro introduced the Equator Principles in 2002, a set of voluntary financial industry benchmarks designed to manage environmental and social risks in project finance. Industrial Ecology, published by T.E.Gradel and B.R.Allenby (2003), systematically expounds the important role of the financial industry in environmental protection and industrial structure adjustment and upgrading. The study of sustainable finance has been promoted to a new stage. Ali M. Fatemi (2013) argues that companies cannot over-emphasize short-term benefits and need to establish a sustainable financing framework to quantify all environmental and social costs or benefits.

China’s green credit policy started late. On the basis of the Western "sustainable financing" theory, combined with China's development status, green credit policy came into being. In July 2007, the former State Environmental Protection Administration, the People's Bank, China Banking Regulatory Commission three departments jointly proposed a new credit policy in order to curb the blind expansion of high energy-consuming and high pollution industry. On January 2008, the former State Environmental Protection Administration signed a cooperation agreement with the World Bank and IFC, decided to jointly develop "green credit guidelines and environmental protection" in line with the actual conditions of China. It clarifies industry environmental standards in our country and makes it possible for financial institutions to follow the rules when implementing green credit. In 2012, the China Banking Regulatory Commission formulated the "Green Credit Guide", which conveys the clear policy direction of industrial structure adjustment.

2. About bank competitiveness

Foreign research on the competitiveness of commercial banks is based on the discussion of the connotation of commercial banks' competitiveness and the rating of commercial banks by rating agencies. About the study of competitiveness, there is Michael Porter's value chain theory. He believes that enterprises constitute the value of enterprises through a series of activities, which can be divided into basic activities and auxiliary activities. In addition, authoritative rating agencies rate major international commercial banks with influence each year. Lausanne International Management Development Institute (IMD) and the World Economic Forum (WEF) conduct an assessment of the competitiveness of countries around the world, which involves the international competitiveness of all commercial banks throughout the country. But it fails to reflect the competitiveness of individual commercial banks. The Banker magazine regularly publishes the rankings of the top 1000 banks in the world every year. The ranking is mainly based on the bank's Tier 1 capital, total assets and asset growth rate, profitability, return on assets, and return on capital.

On the one hand, domestic research on the competitiveness of commercial banks is based on the construction of evaluation models and empirical research. Yue (2010) uses the structural equation model to analyze the liquidity, safety, profitability and growth ability of commercial banks, and believes that supplemental capital can improve the competitiveness of commercial banks. Peng and Huang (2014) use the analytic hierarchy process to analyze the competitiveness of 20 Chinese and foreign banks. It is considered that the competitiveness of China's commercial banks in the intermediary business is obviously insufficient. On the other hand, it discusses how to improve its own core competitiveness and puts forward some suggestions from different dimensions. Deng (2010) and Fang et al. (2014) respectively believe that the core competitiveness can be improved through the development of strategic and business aspects.

3. About camel rating system

The domestic research on CAMELS focuses on using the said system for credit evaluation or business performance evaluation and comparing the competitiveness of banks. Bao (2018) used CAMELS to analyze the credit situation of the Agricultural Bank of China in 2016 and made targeted recommendations. Tao (2017) used it to quantitatively analyze the operating performance of the Bank of Beijing from 2012 to 2016, gave reasons, and made relevant recommendations. On the basis of the CAMELS framework, Zhou (2016) used eight joint-stock commercial banks as samples to evaluate business performance, analyzed the reasons, and proposed targeted measures. Li and Song (2014) used this system to compare the operating performance of state-owned commercial banks and joint-stock banks. Li and Ma (2013) innovated CAMELS, added new indicators, obtained management levels by quantitative methods, calculated total scores by factor analysis, and then compared the scores of China and the United States, thereby gaining inspiration. Xie (2013) used CAMELS as the basis for calculating the competitiveness score of banks and compared the score rankings of 13 banks. Banks can enhance their competitiveness by enhancing management level and profitability, and Xie (2013) made recommendations on the basis of this finding.

There are three main aspects in the study abroad of camel rating system: first, predict bankruptcy for the company. Barr RS et al use CAMELS system to identify the bankrupt company in 1993. Apostolos et al (2011) used the camel rating system as a basis to explain the signs of Lehman Brothers before bankruptcy and proved that the incident should have been foreseen. CAMELS is also used by banks to evaluate bank performance. G Vousinas (2018) used the camel rating model to evaluate the performance of Greek systemic banks in the sovereign debt crisis. Bastan et al (2016) used to evaluate the robustness of the Iranian banking system [11]. Hasan et al (2011) applied the CAMELS framework to the Turkish banking industry and discussed the performance trends of the pre-crisis and post-crisis situations in the Turkish. Later, the researchers tried to combine other methods based on the CAMELS evaluation system. Dincer et al (2015) used the annual data from 2004 to 2014 to analyze 20 deposit banks in Turkey and built a camel rating system with 21 different indicators. Based on this, multiple nominal Logistic regression analysis is established. It found that asset quality, management quality and market risk sensitivity had an impact on credit ratings, while the ratios related to capital adequacy ratio and returns were not significantly related. Ali Shaddady, Tomoe Moore (2018) applied the camel scoring system to quantile regression and found that stricter capital regulation is positively correlated with bank stability, while stricter restrictions, deposit insurance and over-regulation seem to have a negative impact on bank stability.

With regard to the selection of indicators of camel rating system, capital adequacy is used to measure the bank's final liquidity, in order to ensure that commercial banks can withstand the risk of bad debt losses, and is an important criterion for measuring the bank's operational stability. Fang (2011) selected the indicator of capital adequacy ratio, while Lu (2009) selected four indicators: core capital adequacy ratio, shareholder equity ratio, equity-to-loan ratio, and weighted risk assets to total assets. The quality of assets determines the stability and security of commercial banks. Hasan (2011) selected financial assets (Net)/Total Assets, Total Loans and Receivables/Total Assets, and Permanent Assets/Total Assets to measure asset quality. Chen (2014) chose non-performing loan ratio and provision coverage ratio. Dash M, Das A (2009) chooses return on net assets, operating profit and average working fund ratio, after-tax profit and total assets ratio to measure profitability; Chen (2014) selects weighted average return on assets and net profit growth. In addition, sensitivity to market risk can be divided into sensitivity to interest rate risk and sensitivity to exchange rate risk. Two methods are used to measure the level of management quality. One is to use the BSS model proposed by Barr R S et al in 1993, the other is to select some indexes which can reflect the quality of management, for instance, Christopoulos AG et al used management expenses/ sales to measure the quality of management; Chen (2014) selects the cost-to-income ratio and brand value. Because the selection of indicators varies from country to country, the literature on the selection of indicators is mainly used in China based on the assurance that the meaning of CAMELS can be correctly reflected.

Point 3: You should think deeper about many proxies you use and talk about the literature for each variable. For example, for Quantification of management quality levels, see Coles and Li (2018) Managerial Attributes, Incentives, and Performance.

Response 3: Thanks for the suggestion. According to this point, we add the discussion about the proxies. It is added to the third point in the literature review in line 169-186.

With regard to the selection of indicators of camel rating system, capital adequacy is used to measure the bank's final liquidity, in order to ensure that commercial banks can withstand the risk of bad debt losses, and is an important criterion for measuring the bank's operational stability. Fang (2011) selected the indicator of capital adequacy ratio, while Lu (2009) selected four indicators: core capital adequacy ratio, shareholder equity ratio, equity-to-loan ratio, and weighted risk assets to total assets. The quality of assets determines the stability and security of commercial banks. Hasan (2011) selected financial assets (Net)/Total Assets, Total Loans and Receivables/Total Assets, and Permanent Assets/Total Assets to measure asset quality. Chen (2014) chose non-performing loan ratio and provision coverage ratio. Dash M, Das A (2009) chooses return on net assets, operating profit and average working fund ratio, after-tax profit and total assets ratio to measure profitability; Chen (2014) selects weighted average return on assets and net profit growth. In addition, sensitivity to market risk can be divided into sensitivity to interest rate risk and sensitivity to exchange rate risk. Two methods are used to measure the level of management quality. One is to use the BSS model proposed by Barr R S et al in 1993, the other is to select some indexes which can reflect the quality of management, for instance, Christopoulos AG et al used management expenses/ sales to measure the quality of management; Chen (2014) selects the cost-to-income ratio and brand value. Because the selection of indicators varies from country to country, the literature on the selection of indicators is mainly used in China based on the assurance that the meaning of CAMELS can be correctly reflected.

Point 4: Related to the above point, you should study and rationalize the use of firm size measures in the literature. See Dang et al. 2018. Measuring Firm Size in Empirical Corporate Finance. Journal of Banking & Finance January, 86:159-176. After all, size is the most significant variable in most studies in this area. You need to justify your measures and talk about alternative measures whenever possible.

Response 4: Thanks for the suggestion. In the index system construction, we make a supplementary explanation to the size of the enterprise in line 268-280.

It is worth noting that in the relevant research on the competitiveness of banks, the scale of bank operations is a variable that needs to be paid attention to. For example: bankers, the authoritative magazine that ranks the competitiveness of banks around the world every year, takes into account the size of its operations. Only banks with high profitability, good security and no serious liquidity crisis will expand their scale and obtain economies of scale from it. So for most countries, the scale of the bank's operation is actually a comprehensive reflection of the profitability, safety and liquidity of the bank. But the objects of this paper are China’s listed banks. The size of the banks depends not only on the above three factors, but also on the bank's governance structure in China. For example: the size of state-owned banks is generally larger than joint-stock banks’. Therefore, in order to measure the profitability, security and liquidity reasonably and avoid duplication of metrics, the system constructed no longer introduces the variable that can represent the size of the banks. It is regarded as the classification basis of the conclusion. So the system can be used to evaluate the competitiveness of banks of all sizes.

Point 5: It would be interesting to study channels how corporate governance affect competitiveness and rating, even if you don’t have the data or include in your factor model. Other corporate governance channels include: market competition as a governance mechanism: Giroud, X., and H., Mueller, 2011, Corporate governance, product market competition, and equity prices. Journal of Finance 66, 563-600. CEO tournament as governance: Coles et al. 2018, Industry Tournament Incentives, Review of Financial Studies, 31(4):1418-1459. On mutual monitoring among the executives as governance: Li, Z.F., 2014, Mutual monitoring and corporate governance, Journal of Banking & Finance, 45, 255-269. If your data doesn’t have those variables, at least, you need to discuss those aspects of corporate governance to give readers a more comprehensive view.

Response 5: Thanks for the suggestion. Since no relevant data have been collected, we discuss how corporate governance affects competitiveness and grade in line 281-293.

The impact of corporate governance on the competitiveness of banks cannot be ignored. There are several channels of transmission: First, market competition mechanism considering ownership structure. Inspired by Giroud, X., and H., Mueller (2011), we can view China's state-owned banks as a non-competitive industry and share-holding banks as a competitive industry. In China, state-owned banks are backed by the government and there is no risk of bankruptcy. This will leave state-owned banks with insufficient incentives to improve corporate governance, inefficient employees, high investment costs and poor profitability. On the contrary, in order to survive and profit in a competitive environment, joint-stock banks must strengthen corporate governance, so that they will be more competitive. Second, executive compensation incentives. Executive pay is tied to corporate performance, so executives have to improve corporate governance in order to get high pay, which helps to improve the competitiveness of banks. Third, mutual supervision among senior executives. Setting up a reasonable supervision mechanism in the company can reduce the principal-agent problem and improve the performance of the company.

Point 6: Do political ties impact performance and ratings?

Response 6: Thanks for the suggestion. There is no doubt that political relations will also affect the competitiveness of banks, but this paper does not explore this variable. The reasons are in line 294-301:

The government's policy orientation will also affect the competitiveness of banks. He et al. (2018) used the systematic GMM regression method to demonstrate that green credit policies can enhance the competitiveness of banks. However, in addition to the green credit policy, other policies will also affect the competitiveness. For example, if local governments tend to support local commercial banks, like providing preferential policies, it will increase the competitiveness of local commercial banks. Due to the complexity and uncertainty of government decision-making, a variable considering all government policies makes policy variables difficult to quantify, so this paper does not consider the impact of government policies on competitiveness.

Point 7: You need to clearly list your findings. For example, what are the weightings of your factors? Why some factors are more important in your setting? Would they change when you use them elsewhere? If one bank ranked low, what’s the implication to the bank, regulator, and the public? How to improve the ranking? For example, is it useful to put the incentive in compensation contract? See Hong, B., Li, F., Minor, D., 2016, Corporate Governance and Executive Compensation for Corporate Social Responsibility, Journal of Business Ethics, June, 136 (1): 199-213 and Bizjak et al. 2018, Selection of Peer Firms in Relative Performance Evaluation (RPE) Awards.

Response 7: Thanks for the suggestion. According to your suggestion, we have added the following content.

First, we point out the weight of each factor in the result. And the method of empowerment is based on objective weighting method.

In line 430-432, ‘’The results showed that using the entropy weight method to empower objectively, profitability accounted for 34.79%, green index 18.34%, liquidity 16.82%, capital adequacy 14.22%, and asset quality 10.87%, the sensitivity to market risk is 3.6%, and the level of management quality is 1.37%. ‘’

In line 382-385,’’From the weight distribution results, we can see that the impact of green credit is very large, second only to profitability. The large weight of green credit just shows the necessity of independence of green credit, which makes the index system more reasonable and reflects the concept of green development in China. ‘’

Second, in different circumstances, the system will not change, that is, it applies to financial institutions of all sizes.

In line 268-280,’’It is worth noting that in the relevant research on the competitiveness of banks, the scale of bank operations is a variable that needs to be paid attention to. For example: bankers, the authoritative magazine that ranks the competitiveness of banks around the world every year, takes into account the size of its operations. Only banks with high profitability, good security and no serious liquidity crisis will expand their scale and obtain economies of scale from it. So for most countries, the scale of the bank's operation is actually a comprehensive reflection of the profitability, safety and liquidity of the bank. But the objects of this paper are China’s listed banks. The size of the banks depends not only on the above three factors, but also on the bank's governance structure in China. For example: the size of state-owned banks is generally larger than joint-stock banks’. Therefore, in order to measure the profitability, security and liquidity reasonably and avoid duplication of metrics, the system constructed no longer introduces the variable that can represent the size of the banks. It is regarded as the classification basis of the conclusion. So the system can be used to evaluate the competitiveness of banks of all sizes.’’

Third, if one bank ranked low, what’s the implication to the bank, regulator, and the public?

In line 503-510,’’For the public, they can choose banks to save or invest according to the ranking of bank competitiveness. The public may be more inclined to choose the top banks because they perform well in terms of security, profitability, liquidity and sustainability. For banks, the public choice of these banks has an incentive effect on other banks. Therefore, it promotes the sustainable development of the entire banking industry. There are many local banks in China, and local banks are rushing into other areas in order to expand their size. So local governments can selectively accept or reject banks to establish branches to expand their scale, according to their rankings. This ranking also provides a realistic basis for regulators to formulate financial policies.’’

Forth, how to improve the ranking? For example, is it useful to put the incentive in compensation contract?

We added a lot to the conclusions and prospects. In line 512-580,’’Under the premise of ensuring safety, state-owned banks should make innovations on their profit models and find new profit growth points. Compared with the intermediate business of some joint-stock banks, state-owned banks have poor product innovation, fewer types of products, and worse profitability. Therefore, the state-owned commercial banks should substantially increase the proportion of intermediary business income to total revenue, improve the intermediate business organization system and mechanism, and strengthen the management of the intermediary business; make full use of all resources and advantages to strengthen technological innovation and process integration, promote the research and development of new products and the upgrading of old products. Strengthen marketing and perfect marketing mode. Make full use of the advantages of state-owned banks in capital, institutions, networks, information, technology and brands, implement an integrated marketing strategy, and implement a marketing model of customer managers, product managers and counter-marketing. Promote the development of various intermediary business linkages. The positive interaction between the intermediary business and the asset-liability business, and achieve the integrated business objectives of the intermediary business. At the same time of implementing salary incentives, we must further organize business competitions, formulate a reasonable reward and punishment mechanism, mobilize employees' work enthusiasm; commercial banks should maintain moderate asset expansion speed. Banks need to appropriately control the scale of assets, improve the efficiency of capital operation, and avoid value-damaging acquisitions to blindly expand the scale, improve service levels and quality, and improve customer satisfaction. In addition, the G-CAMELS system, which has joined the green indicator, has improved the competitiveness of state-owned banks as a whole. The reason for the improvement of the competitiveness of state-owned banks is that they can meet the policy requirements of bank transformation, shorten the transition period, adjust the business structure in time, control potential risk, enrich the original business, and integrate the green financial policy with the whole target of banks by virtue of their good reputation, strong capital strength, and strong ability to resist risks. Therefore, state-owned banks should continue to implement the green credit policy, actively serve green development, respond to the call of national policies, accelerate economic transformation, and promote sustainable development.

Joint-stock commercial banks should continue to expand their advantages in asset quality and profitability, as well as improve on the supervision of capital adequacy and market risk. On the one hand, capital adequacy is determined by the proportion of the bank's own capital and risk assets. Clearing up non-performing loans can reduce the ratio of non-performing assets and improve the quality of assets. Reducing the total amount of risky assets can moderately reduce the proportion of credit assets, and constantly improve the proportion of investment and financing assets. It aims to increase their own capital and reduce risk assets to increase the capital adequacy of banks. Banks can also improve the capital adequacy by adjusting the structure of risk assets. Promote the reform of the bank's property rights system and form a diversified property rights structure. The introduction of foreign capital and private capital can not only expand the bank's capital, but also achieve the effect of optimizing the shareholding structure and corporate governance structure. On the other hand, with the globalization process and the increasing degree of marketization in China, the risks faced by banks are also increasing. Joint-stock banks should strengthen risk management and the training of professionals involved in risk control to ensure the stability of China's financial system. They should also actively cooperate with the financial supervision department, prepare for risk prevention.

Given the late start-up, small asset scale, and strong regional dependence, the city commercial bank has been facing a severe test. For most city commercial banks, the green financial policy undoubtedly increases their operational pressure. Therefore, to ensure their good operation under the premise of gradual transformation, the state can moderately reduce the implementation standards for green financial policies of city commercial banks. Additionally, urban commercial banks should be encouraged to develop innovative businesses and to practice social responsibility while making profits. Related measures can be found in the recommendations given to state-owned banks and joint-stock banks.

In this paper, we need to further explore and study in the following aspects. First, this paper uses the framework of the camel rating system to comprehensively evaluate the competitiveness of banks, but the camel rating system has certain limitations. The main limitations are as follows. False accounting by financial institutions leads to errors in assessment; management personnel quality assessment is subjective and complex; CAMELS cannot calculate expected risks; some indicators can only be used for post-mortem analysis and cannot be predicted. Second, combined with China's national conditions, this article selects indicators based on literature. But the variables may not fully reflect the bank's information. For example, in most of the literature, capital indicators include capital adequacy ratios or core Tier 1 capital adequacy ratio indicators. However, capital has an indicator of capital adequacy ratio in the initial established indicator system, and it is deleted after factor analysis. The cause needs further discussion. Third, although the linear ordering method used in this paper is easy to operate, but it does not have stability. Further discussion can try to use other sorting methods to correct the results. This article is limited to length and is no longer covered. Fourth, the paper uses the objective weighting method. Try to use the expert scoring method to weight and observe how the score results change. Fifth, in the BSS model, it will be better to select more samples. But in view of the late listing time of Chinese banks and the small number of listed banks, this paper only selected 16 banks. In addition, the BSS model has its own limitations. For example, whether the selection of variables is comprehensive will also affect the efficiency of bank management. Therefore, how to more accurately quantify the quality of management needs further research.’’

Point 8: Extensive editing of English language and style required.

Response 8: Thanks for the suggestion. We have re-edited the entire paper to avoid the awkward errors and adjusted the formatting issues.

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

Well authors have revised the manuscript considering my suggestions.

However following points still need to be appropriately focused.

How would the higher- or lower-level of green credit would affect the overall performance of banks which traditional CAMEL can't capture and we need G-CAMEL? Focus on how green credit would affect the banks. If it increases performance, why? Are green investments pay higher return to banks?

What is green financial policy as authors mention it in paper? Authors mentioned it with respect to China. Can they give specific examples from this policy and cite some reference about policy document?

Author Response

Response to Reviewers

Fangyuan Guan, Chuanzhe Liu, Fangming Xie, Huiying Chen

Response to Reviewer 1 Comments

Point 1: How would the higher- or lower-level of green credit would affect the overall performance of banks which traditional CAMEL can't capture and we need G-CAMEL? Focus on how green credit would affect the banks. If it increases performance, why? Are green investments pay higher return to banks?

Response 1: Thanks for the suggestion. The influence paths of green credit on the bank’s performance are added to the fourth part of the literature review. Then the paths adopted in this paper are put forward.

2.4 About the influence path of green credit on the bank’s competitiveness

Few study research on the effect of green credit on the bank’s competitiveness. Most of study is about the related concepts of green credit and competitiveness, such as the relationship between social responsibility and operation performance or the relationship between the green credit and the development of the bank.

Study the relationship between the green credit and the development of the bank. For example, Zhou (2014)[35] sets up an empirical model through the theoretical analysis results, and selects the relevant data of China's commercial bank in 2008-2012 as a sample. The result shows that there is a significant negative correlation between the green credit and the profit. Chen (2014)[36] focuses on the sustainable development of commercial banks and links them with the implementation of environmental responsibility. It is shown that there is a significant positive correlation between the implementation of the green credit and the sustainable development of the future. Some scholars have also analyzed the effect of the performance of social responsibility on the competitiveness of the bank. Liu (2009)[37] shows that the fulfillment of social responsibility is significantly related to their core competitiveness under the 95 % confidence level. Lei (2013)[38] concludes that the behavior of our commercial banks in the performance of social responsibility has a positive impact on its core competitiveness. And this effect is significant both in the short term and in the long term.

With the deepening of the research, a few scholars have studied the effect of green credit on the bank’s competitiveness, and put forward the influence path. Wang (2016)[39] believes that the performance of green credit through environmental risk management and social responsibility has an impact on the bank's management ability and the reputation of the bank, which in turn has an impact on the core competitiveness of the bank. On the basis of Wang, Chai (2017)[40] also proposes that green credit will influence its domestic competitiveness through the influence of the international competitiveness of commercial banks. Gao (2018) [41]mentioned three influencing mechanisms, one more path than Wang, the theory of financial sustainable development first proposed by Bai（2003）[42].

In this paper, the three effects mentioned by Gao (2018)[41] and Wang (2016)[39], namely, the theory of financial sustainable development, the theory of corporate social responsibility and the theory of bank environmental risk. The theory of sustainable development of finance is to regard finance as a kind of special resource or strategic resource of a country. Therefore, the irrationality of the economic structure can be solved through rational allocation of financial resources, thereby improving economic efficiency. Green credit policies can increase efficiency and reduce vulnerability to achieve sustainable financial and economic development. The theory of corporate social responsibility has also affected the competitiveness of banks through three channels. (1) Green credit can bring reputational effects to commercial banks and help them establish a positive social image. (2) The implementation of green credit can have a positive impact on the business capacity and performance. And the boosting effect on the long-term development is more effective. There are many theories about the implementation of corporate social responsibility, management ability and the performance of the enterprise. The relevant research finds that there is a certain positive correlation among them. For example, Peng (2018)[43], Huang (2018)[44], Zeng(2016)[45] and E.J. Cilliers et al(2012)[46] have demonstrated a significant positive correlation between the green credit scale and the performance of the bank. The implementation of green credit can help banks to find their market opportunity and improve value realization ability. The implementation of green credit can help commercial banks to take the lead in entering the market. Fund rationing is tilted towards green industry, environmental protection industry, and new energy industry so that the responsibility opportunities can be converted into market opportunities. It will help the enterprises to improve their core competitiveness. (3) The implementation of green credit can set up a social responsibility barrier, which helps bring positive externalities to the bank and win a high confidence. And these banks will create a more durable, more sustainable competitive advantage and promote competitiveness. The last path is the bank's environmental risk path. The environmental risk management is a series of measures taken by the bankers to avoid the losses caused by environmental risks such as credit and reputation. The green credit policy is to encourage commercial banks to invest in environmentally friendly enterprises and projects. The government's green credit policy is the source and power of the commercial bank to carry out the environmental risk management. There is no strict green credit policy. The commercial bank cannot gain the higher income than its cost without strict green credit policy. Therefore, the commercial banks will also actively introduce and adopt the technology of environmental risk management to improve the competitiveness under the strict green credit policy. The impact mechanism of commercial banks' green credit on competitiveness is shown in Figure 1.

Therefore, most of the literature only stays in the study of social responsibility and sustainable development, and cannot give specific advice to the government and banks. However, few researchers conduct the research between green credit and bank competitiveness, and further research can be carried out. This article is based on the ranking of bank competitiveness and gives specific policy recommendations, which is of great reference value to the government and the bank.

Point 2: What is green financial policy as authors mention it in paper? Authors mentioned it with respect to China. Can they give specific examples from this policy and cite some reference about policy document?

Response 2: Thanks for the suggestion. We have added the examples to the contents and moved it into the first part of literature review.

Green financial policy refers to a series of institutional arrangements concerning financing conditions, financing processes and incentive measures formulated by government departments for financial institutions and enterprises. For example, in terms of green credit, the China Banking Regulatory Commission formulated the Green Credit Guidelines on February, 2012. It requires major commercial banks to control credits for enterprises and projects that do not meet industrial policies and environmental requirements. The document curbs the expansion of high-pollution and energy-intensive industries, and conveys a signal of transforming development concepts and investing in green industries. It can be seen from Note 1 that the green credit balance of 21 major banks in China is increasing year by year. In terms of green bonds, the People's Bank of China issued the Green Bond Support Project Catalogue in December 2015. Since then, it has issued Guidance on Building a Green Financial System, China Securities Regulatory Commission's Guidance on Supporting the Development of Green Bonds and Business Guidelines on Green Debt Financing Tools for Non-Financial Enterprises to support the development of China's green bonds. Green bonds have developed rapidly in China. By the end of 2016, 205.231 billion yuan of green bonds had been issued in China. The issuance scale of green financial bonds amounted to $1, 55.5 billion, accounting for 75.52% of the total size of the green bond issue.

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Reviewer 3 Report

The authors put considerable effort in the revision of the paper. They finally convinced me that the paper can be published in its current form.

Author Response

Dear reviewers:

Thanks very much for your kind work and suggestions for our paper. On behalf of my co-authors, we would like to express our great appreciation to you.

Thank you and best regards.

Yours sincerely,

Fangyuan Guan

Reviewer 4 Report

Minimally improved. My comments were taken only on the surface. For example, you add the findings to the abstract,but didn’t revise it accordingly. Now the abstract is too long, with too much on irrelevant info on data and terminology. Literature review is not complete or revised based on comments. Quality of writing and hypotheses have not been improved significantly. Please read the paper again and expand literature review. There are many ambiguous sentences, making the paper hard to read.

Author Response

Response to Reviewers

Fangyuan Guan, Chuanzhe Liu, Fangming Xie, Huiying Chen

Response to Reviewer 4 Comments

Point: Minimally improved. My comments were taken only on the surface. For example, you add the findings to the abstract, but didn’t revise it accordingly. Now the abstract is too long, with too much on irrelevant info on data and terminology. Literature review is not complete or revised based on comments. Quality of writing and hypotheses has not been improved significantly. Please read the paper again and expand literature review. There are many ambiguous sentences, making the paper hard to read.

Response: Thanks for your suggestions. According to your comments, we revised the paper based on your suggestions in the first round. Here is the re-revision for the first round.

Point 1: In the abstract, you should list your findings and suggestions.

Response 1: Thanks for the suggestion. According to this point, we have revised the abstract based on the last revision.

On the basis of the original camel rating system, this study added the green indicator and formed the G-CAMELS evaluation system to comprehensively evaluate the competitiveness of commercial banks. It followed China's current requirements for the sustainable development of commercial banks. In this paper, factor analysis, entropy method and dynamic evaluation model are used to obtain the ranking of competitiveness. In addition, according to the same steps as above, the comprehensive ranking based on the CAMELS evaluation system was obtained. The two ranking systems were compared. It is found that with the entropy weight method, in the G-CAMELS system, the weight of the green index is quite large, so it magnifies the impact of the financial industry on the environment. Compared with the original CAMELS system, the newly formed system will increase the ranking of state-owned banks and there is no significant change in the ranking of joint-stock banks. In order to improve the competitiveness of banks, state-owned banks should innovate their banking business and continue to implement the green credit policy; joint-stock banks continue to seize the opportunity of green credit, expand profitability while paying attention to safety; in addition, the government could consider relaxing green credit standards for city commercial banks to ease pressure on banks.

Response 2: Thanks for the suggestion. According to this point, we revised the significance of the research and contribution in the introduction.

Since the original camel rating system examines the comprehensive situation of the bank, the framework of the camel rating system can provide a comprehensive evaluation of the competitiveness of the bank. The G-CAMELS system has added an easy-to-quantitative green indicator that reflects the bank's environmental impact. While comprehensively examining the bank's situation, it also emphasizes environmental factors and embodies the concept of green development. Therefore, the G-CAMELS system constructed in this paper promotes the research on bank competitiveness. It provides a new method for government and bank decision makers to measure the competitiveness. Moreover, this paper enriches the content of the camel rating system and adapts to the requirements of the times. It has reached the conclusion that green credit may not be able to enhance the competitiveness for different types of banks. Then we proposed different recommendations to different types of banks. The government should encourage state-owned banks to continue to implement green financial policies and green innovation, such as the development of green financial products to enhance profitability. Moderately lower the standards of the green credit policy of joint-stock banks yet, especially local commercial banks. It is worth thinking that this article advances the understanding of sustainable development. In general, sustainability can be understood as philanthropy act, creating value that protects the welfare of local communities. But from the perspective of the bank's point of view, sustainable development can not only bring environmental benefits, but also enables banks to increase their profit through the bank's business operations or financial innovation. It is a win-win result.

In the literature review, we mention that” Therefore, most of the literature only stays in the study of social responsibility and sustainable development, and cannot give specific advice to the government and banks. However, few researchers conduct the research between green credit and bank competitiveness, and further research can be carried out. This article is based on the ranking of bank competitiveness and gives specific policy recommendations, which is of great reference value to the government and the bank.”

Point 3: Adding the above discussion and extend your literature review may help you make more contributions and position your contributions better.

Response 3: Thanks for the suggestion. We enrich the literature review. And it is divided into four parts. They are about green credit, bank competitiveness, camel rating systems, and the influence path of green credit on the bank’s competitiveness.

1. About green credit

In the early 1980s, the US Congress passed the “Super Fund Act”, which made the banking industry begin to take environmental risks into consideration. It also made the banking industry realize that finance is of great significance to environmental protection and human social development. After that, developed countries have begun to study the relevant theories. Mark A. White (1996)[2] first proposed that green finance is to promote environmental protection by using various financial instruments, and require that environmental risk factors should be included when making financing decisions.Marcel Jeucken (2002)[3] provides a more comprehensive explanation of sustainable financing in the Sustainable Finance and Banking. He believes that commercial banks can take advantage of their huge advantages in resource allocation, and guide the sustainable development of the economy and society through various credit policies and the means of deployment. For example, when banks provide loans to sustainable commercial projects, they can promote the development of sustainable projects by charging lower fees. To better implement sustainable finance theory, IFC - International Finance Corporation(IFC) and ABN Amro introduced the Equator Principles in 2002, a set of voluntary financial industry benchmarks designed to manage environmental and social risks in project finance. Industrial Ecology[4], published by T.E.Gradel and B.R.Allenby (2003), systematically expounds the important role of the financial industry in environmental protection and industrial structure adjustment and upgrading. The study of sustainable finance has been promoted to a new stage. Olaf Weber(2011)[5] describes the importance of adding sustainability assessments of projects to credit review mechanisms. Ali M. Fatemi (2013)[6] argues that companies cannot over-emphasize short-term benefits and need to establish a sustainable financing framework to quantify all environmental and social costs or benefits.

On the basis of the Western "sustainable financing" theory, combined with China's development status, green financial policy came into being. Green financial policy refers to a series of institutional arrangements concerning financing conditions, financing processes and incentive measures formulated by government departments for financial institutions and enterprises. For example, in terms of green credit, the China Banking Regulatory Commission formulated the Green Credit Guidelines on February, 2012. It requires major commercial banks to control credits for enterprises and projects that do not meet industrial policies and environmental requirements. The document curbs the expansion of high-pollution and energy-intensive industries, and conveys a signal of transforming development concepts and investing in green industries. It can be seen from Note 1 that the green credit balance of 21 major banks in China is increasing year by year. In terms of green bonds, the People's Bank of China issued the Green Bond Support Project Catalogue in December 2015. Since then, it has issued Guidance on Building a Green Financial System, China Securities Regulatory Commission's Guidance on Supporting the Development of Green Bonds and Business Guidelines on Green Debt Financing Tools for Non-Financial Enterprises to support the development of China's green bonds. Green bonds have developed rapidly in China. By the end of 2016, 205.231 billion yuan of green bonds had been issued in China. The issuance scale of green financial bonds amounted to $1, 55.5 billion, accounting for 75.52% of the total size of the green bond issue. He(2006)[7] pointed out that the development of green finance can effectively promote the transformation and upgrading of the industrial structure. China’s green credit policy started late. In July 2007, the former State Environmental Protection Administration, the People's Bank, China Banking Regulatory Commission three departments jointly proposed a new credit policy in order to curb the blind expansion of high energy-consuming and high pollution industry. On January 2008, the former State Environmental Protection Administration signed a cooperation agreement with the World Bank and IFC, decided to jointly develop "green credit guidelines and environmental protection" in line with the actual conditions of China. It clarifies industry environmental standards in our country and makes it possible for financial institutions to follow the rules when implementing green credit. In 2012, the China Banking Regulatory Commission formulated the "Green Credit Guide", which conveys the clear policy direction of industrial structure adjustment. Liu(2012)[8] analyzed the problems in the implementation of green credit in China. For example, the scale of credit business of commercial banks would shrink, and the risk assessment standards and procedures of green credit business are not mature.

2. About bank competitiveness

Foreign research on the competitiveness of commercial banks is based on the discussion of the connotation of commercial banks' competitiveness and the rating of commercial banks by rating agencies. About the study of competitiveness, there is Michael Porter's value chain theory (1990)[9]. He believes that enterprises constitute the value of enterprises through a series of activities, which can be divided into basic activities and auxiliary activities. In addition, authoritative rating agencies rate major international commercial banks with influence each year. Lausanne International Management Development Institute (IMD) and the World Economic Forum (WEF) conduct an assessment of the competitiveness of countries around the world, which involves the international competitiveness of all commercial banks throughout the country. But it fails to reflect the competitiveness of individual commercial banks. The Banker(2018)[10] magazine regularly publishes the rankings of the top 1000 banks in the world every year. The ranking is mainly based on the bank's Tier 1 capital, total assets and asset growth rate, profitability, return on assets, and return on capital. Some scholars have used various models to evaluate the competitiveness of banks in various countries. For example, Dong Jin Shin and Brian H. S. Kim (2013)[11] used the Panzar and Rosse models and the data from 1992 to 2007 to analyze the competitiveness.

On the one hand, domestic research on the competitiveness of commercial banks is based on the construction of evaluation models and empirical research. Huang and Liu(2007)[12] used the factor analysis method and the analytic hierarchy process to obtain the bank competitiveness system. Qing (2009)[13]designed five first-level evaluation indicators: uniqueness, strategic value, system integration, extensibility and dynamics. Yue (2010)[14] uses the structural equation model to analyze the liquidity, safety, profitability and growth ability of commercial banks, and believes that supplemental capital can improve the competitiveness of commercial banks. Yang et al (2012)[15] used the factor analysis method to obtain the measurement model of the core competitiveness of listed banks in China. Liu and Zhang(2018)[16] selected 16 A-share listed commercial banks of China and the data of 2017 is analyzed by factor analysis. And the comprehensive ranking of each bank is calculated through the indexes. So the advantages of the state-owned commercial banks are analyzed. On the other hand, it discusses how to improve its own core competitiveness and puts forward some suggestions from different dimensions. Deng (2010)[17]and Fang et al. (2014)[18] respectively believe that the core competitiveness can be improved through the development of strategic and business aspects.

3. About camel rating system

The domestic research on CAMELS focuses on using the said system for credit evaluation or business performance evaluation and comparing the competitiveness of banks. Bao(2018)[19] used CAMELS to analyze the credit situation of the Agricultural Bank of China in 2016 and made targeted recommendations. Tao(2017)[20]used it to quantitatively analyze the operating performance of the Bank of Beijing from 2012 to 2016, gave reasons, and made relevant recommendations. On the basis of the CAMELS framework, Zhou (2016)[21] used eight joint-stock commercial banks as samples to evaluate business performance, analyzed the reasons, and proposed targeted measures. Li and Song (2014)[22] used this system to compare the operating performance of state-owned commercial banks and joint-stock banks. Li and Ma (2013)[23] innovated CAMELS, added new indicators, obtained management levels by quantitative methods, calculated total scores by factor analysis, and then compared the scores of China and the United States, thereby gaining inspiration. Xie (2013)[24] used CAMELS as the basis for calculating the competitiveness score of banks and compared the score rankings of 13 banks. Banks can enhance their competitiveness by enhancing management level and profitability, and Xie (2013)[24] made recommendations on the basis of this finding.

There are three main aspects in the study abroad of camel rating system: first, predict bankruptcy for the company. Barr RS et al[25] use CAMELS system to identify the bankrupt company in 1994. Christopoulos AG et al (2011)[26] used the camel rating system as a basis to explain the signs of Lehman Brothers before bankruptcy and proved that the incident should have been foreseen. CAMELS is also used by banks to evaluate bank performance. G Vousinas (2018)[27] used the camel rating model to evaluate the performance of Greek systemic banks in the sovereign debt crisis. Bastan et al (2016)[28] used to evaluate the robustness of the Iranian banking system. Hasan et al (2011)[29] applied the CAMELS framework to the Turkish banking industry and discussed the performance trends of the pre-crisis and post-crisis situations in the Turkish. Later, the researchers tried to combine other methods based on the CAMELS evaluation system. Dincer et al (2015)[30] used the annual data from 2004 to 2014 to analyze 20 deposit banks in Turkey and built a camel rating system with 21 different indicators. Based on this, multiple nominal Logistic regression analysis is established. It found that asset quality, management quality and market risk sensitivity had an impact on credit ratings, while the ratios related to capital adequacy ratio and returns were not significantly related. Ali Shaddady, Tomoe Moore (2018)[31] applied the camel scoring system to quantile regression and found that stricter capital regulation is positively correlated with bank stability, while stricter restrictions, deposit insurance and over-regulation seem to have a negative impact on bank stability.

With regard to the selection of indicators of camel rating system, capital adequacy is used to measure the bank's final liquidity, in order to ensure that commercial banks can withstand the risk of bad debt losses, and is an important criterion for measuring the bank's operational stability. Fang (2011)[32] selected the indicator of capital adequacy ratio, while Lu (2009)[33] selected four indicators: core capital adequacy ratio, shareholder equity ratio, equity-to-loan ratio, and weighted risk assets to total assets. The quality of assets determines the stability and security of commercial banks. Hasan (2011)[29] selected financial assets (Net)/Total Assets, Total Loans and Receivables/Total Assets, and Permanent Assets/Total Assets to measure asset quality. Chen (2014)[34] chose non-performing loan ratio and provision coverage ratio. Dash M, Das A (2009)[35] chooses return on net assets, operating profit and average working fund ratio, after-tax profit and total assets ratio to measure profitability; Chen (2014) [34]selects weighted average return on assets and net profit growth. In addition, sensitivity to market risk can be divided into sensitivity to interest rate risk and sensitivity to exchange rate risk. Two methods are used to measure the level of management quality. One is to use the BSS model proposed by Barr R S et al[36] in 1993, the other is to select some indexes which can reflect the quality of management, for instance, Christopoulos AG et al[26] used management expenses/sales to measure the quality of management; Chen (2014)[34] selects the cost-to-income ratio and brand value. Because the selection of indicators varies from country to country, the literature on the selection of indicators is mainly used in China based on the assurance that the meaning of CAMELS can be correctly reflected.

4. About the influence path of green credit on the bank’s competitiveness

Study the relationship between the green credit and the development of the bank. For example, Seifert et al (2004)[37] and Brammer et al (2005)[38] hold that there is no correlation between the social responsibility of banks and their operating performance by means of empirical tests. Liu (2009)[39] shows that the fulfillment of social responsibility is significantly related to their core competitiveness under the 95 % confidence level. Lei (2013)[40] concludes that the behavior of our commercial banks in the performance of social responsibility has a positive impact on its core competitiveness. And this effect is significant both in the short term and in the long term. Zhou (2014)[41] sets up an empirical model through the theoretical analysis results, and selects the relevant data of China's commercial bank in 2008-2012 as a sample. The result shows that there is a significant negative correlation between the green credit and the profit. Chen (2014)[42] focuses on the sustainable development of commercial banks and links them with the implementation of environmental responsibility. It is shown that there is a significant positive correlation between the implementation of the green credit and the sustainable development of the future. Some scholars have also analyzed the effect of the performance of social responsibility on the competitiveness of the bank. He et al. (2019) [43] examined the nonlinear relationship between renewable energy investment and green economy development from the perspective of green credit. Paola Gazzola et al (2019) [44] showed that combining policy and intelligence into the blueprint for environmental protection is more conducive to achieving sustainable development concepts, thereby promoting sustainable development decisions.

With the deepening of the research, a few scholars have studied the effect of green credit on the bank’s competitiveness. He et al. (2018)[45] used the systematic GMM regression method to demonstrate that green credit policies can enhance the competitiveness of banks. Some scholars have proposed the path of green credit to the competitiveness of banks. Wang (2016)[46] believes that the performance of green credit through environmental risk management and social responsibility has an impact on the bank's management ability and the reputation of the bank, which in turn has an impact on the core competitiveness of the bank. On the basis of Wang, Chai (2017)[47] also proposes that green credit will influence its domestic competitiveness through the influence of the international competitiveness of commercial banks. Gao (2018) [48]mentioned three influencing mechanisms, one more path than Wang, the theory of financial sustainable development first proposed by Bai（2003）[49].

In this paper, the three effects mentioned by Gao (2018)[48] and Wang (2016)[46], namely, the theory of financial sustainable development, the theory of corporate social responsibility and the theory of bank environmental risk. The theory of sustainable development of finance is to regard finance as a kind of special resource or strategic resource of a country. Therefore, the irrationality of the economic structure can be solved through rational allocation of financial resources, thereby improving economic efficiency. Green credit policies can increase efficiency and reduce vulnerability to achieve sustainable financial and economic development. The theory of corporate social responsibility has also affected the competitiveness of banks through three channels. (1) Green credit can bring reputational effects to commercial banks and help them establish a positive social image. (2) The implementation of green credit can have a positive impact on the business capacity and performance. And the boosting effect on the long-term development is more effective. There are many theories about the implementation of corporate social responsibility, management ability and the performance of the enterprise. The relevant research finds that there is a certain positive correlation among them. For example, Peng (2018)[50], Huang (2018)[51], Zeng(2016)[52] and E.J. Cilliers et al(2012)[53] have demonstrated a significant positive correlation between the green credit scale and the performance of the bank. The implementation of green credit can help banks to find their market opportunity and improve value realization ability. The implementation of green credit can help commercial banks to take the lead in entering the market. Fund rationing is tilted towards green industry, environmental protection industry, and new energy industry so that the responsibility opportunities can be converted into market opportunities. It will help the enterprises to improve their core competitiveness. (3) The implementation of green credit can set up a social responsibility barrier, which helps bring positive externalities to the bank and win a high confidence. And these banks will create a more durable, more sustainable competitive advantage and promote competitiveness. The last path is the bank's environmental risk path. The environmental risk management is a series of measures taken by the bankers to avoid the losses caused by environmental risks such as credit and reputation. The green credit policy is to encourage commercial banks to invest in environmentally friendly enterprises and projects. The government's green credit policy is the source and power of the commercial bank to carry out the environmental risk management. There is no strict green credit policy. The commercial bank cannot gain the higher income than its cost without strict green credit policy. Therefore, the commercial banks will also actively introduce and adopt the technology of environmental risk management to improve the competitiveness under the strict green credit policy. The impact mechanism of commercial banks' green credit on competitiveness is shown as Figure 1.

Point 4: You should think deeper about many proxies you use and talk about the literature for each variable. For example, for Quantification of management quality levels, see Coles and Li (2018) Managerial Attributes, Incentives, and Performance.

Response 4: Thanks for the suggestion. We add the indicator selection section in the index system construction and data pre-processing.

In terms of green indicators, in order to reflect the concept of green development, this paper chooses the green credit ratio as an indicator to reflect the bank's tendency to conduct green business operations. It reflects the bank's ability to sustain development. Capital adequacy ratio is one of the indicators that can intuitively reflect capital adequacy. The shareholder equity ratio reflects how much the company's assets are invested by the owner. If the value is too small, the company is over-indebted. If too large, the company does not actively use financial leverage to expand the scale. The capital ratio reflects the capital structure. A reasonable capital ratio is to find a balance between the funds raised from the outside and the self-owned funds, which can promote the healthy and rapid development of the company. The ratio of capital to assets shows the proportion of the bank's own capital to the total assets and the ability of to take risks. In terms of asset quality, the reserve for doubtful accounts is the fund to be prepared as a loss of the write-off loan, which shows the expected losses. The interest bearing assets refers to assets formed by the financial institution to melt or deposit funds. It aims to charge interest, so the higher the interest-bearing asset ratio is, the higher the quality of the asset is. Therefore, the higher the ratio of interest-earning assets is, the higher the asset quality is. The loan-to-deposit ratio can enhance the ability to defend against bad debt risks. The higher the ratio of weighted risk assets is, the greater the risk is, the worse the asset quality is. The loan provision rate mainly embodies the ability to make up for loan losses and the ability to prevent loan risks. Regarding the measurement of management quality level, most of the literatures select the indexes that can reflect the management level. But most of these indexes are qualitative and subjective. In this paper, the BSS model is combined with the DEA method to determine the management efficiency. Among the profitability, net interest margin is the rate of return on interest-bearing assets. The weighted risky return on assets and the return on net assets are common indicators that reflect the bank's operating performance. Among the liquidity indicators, the liquidity ratio and the liquidity gap rate are the core indicators of risk supervision, which measures the liquidity status and their volatility of commercial banks. Sensitivity to market risk can be divided into sensitivity to exchange risk and sensitivity to interest rate risk. The former can be observed by the cumulative exchange exposure ratio, the latter is observed by the rate-sensitive ratio disclosed by the banks.

Point 5: Related to the above point, you should study and rationalize the use of firm size measures in the literature. See Dang et al. 2018. Measuring Firm Size in Empirical Corporate Finance. Journal of Banking & Finance January, 86:159-176. After all, size is the most significant variable in most studies in this area.

Response 5: Thanks for the suggestion. In the index system construction, we explained the reason why we didn't add the firm size variable.

Point 6: It would be interesting to study channels how corporate governance affect competitiveness and rating, even if you don’t have the data or include in your factor model. Other corporate governance channels include: market competition as a governance mechanism: Giroud, X., and H., Mueller, 2011, Corporate governance, product market competition, and equity prices. Journal of Finance 66, 563-600. CEO tournament as governance: Coles et al. 2018, Industry Tournament Incentives, Review of Financial Studies, 31(4):1418-1459. On mutual monitoring among the executives as governance: Li, Z.F., 2014, Mutual monitoring and corporate governance, Journal of Banking & Finance, 45, 255-269. If your data doesn’t have those variables, at least, you need to discuss those aspects of corporate governance to give readers a more comprehensive view.

Response 6: Thanks for the suggestion. We rewrite this part based on your suggestions and give a deep discussion.

Bank governance can also have an impact on competitiveness by affecting the bank's business performance. But the data is incomplete, therefore only a few channels are discussed here, as shown in Figure 2.

Firstly, the market competition mechanism (Giroud, X., and H., Mueller (2011) [60]). China's state-owned banks are less competitive, while joint-stock banks are more competitive. State-owned banks are backed by the government, with less risk of bankruptcy. This will leave state-owned banks with insufficient incentives to improve corporate governance, inefficient employees, high investment costs and poor profitability. On the contrary, in order to survive and profit in a competitive environment, joint-stock banks must strengthen corporate governance to be more competitive.

Second, the shareholding structure. [61]The shareholding structure affects the competitiveness of banks through the nature of equity and the concentration of ownership. From the perspective of the equity nature, when the nature of the largest shareholder is state-owned in the smaller banks, it will have a significant positive impact on business performance. While the larger banks have a positive correlation with business performance, the effect is not good. The reason why the state holds more shares of large commercial banks is to promote economic development, maintain social stability, and facilitate the use of macro-control functions. The state’s shareholding in small and medium-sized commercial banks is to participate in and improve the internal governance of banks. From the perspective of equity concentration, the largest shareholder’s shareholding ratio of state-owned commercial banks is negatively correlated with business performance, while the shareholding ratio of the top five shareholders is positively related to business performance, while the joint-stock banks are just the opposite. While pursuing profits, state-owned banks must consider the country's policy intentions, so these steps will have a certain impact on the improvement of banks’ business performance. If the bank's equity is concentrated in several shareholders, it is not conducive to the improvement of the bank's internal management system, and thus the operating efficiency will decline. In small and medium-sized banks, the gap between state-owned shares and the major shareholders is small. The distribution of such shares is beneficial to mutual supervision and mutual checks and balances, which contributes to the improvement of banks’ business performance.

Thirdly, executive compensation incentives [62] [63]. Explain executive compensation incentives can improve the bank's business performance in four ways. First, the goal of the principal is to pursue the increase in shareholders’ wealth and maximize the value of the company, while the goal of the agent is to pursue the maximization of self-reward and the realization of its own value. To avoid the inconformity between the two goals, the link between the executive compensation and the enterprise performance will be established. Then maximize the performance of the enterprise while maximizing the utility of the agents[64]. Secondly, the acquisition of high human capital stock requires a higher level of investment, and the executives with high-quality are in short supply. Therefore, executives with high human capital should receive higher compensation. In addition, the senior management is basically a person with a higher social status, and its demand is generally at a higher level. Therefore, the focus of executive compensation incentives should be different based on their needs[65]. Finally, it is known from the two-factor theory [66] that only incentives can bring satisfaction to people and generate incentives. If the company simply increases the basic salary, ignores the role of incentive compensation and the spiritual incentives, it is difficult for executives to create wealth for shareholders. Therefore, the basic salary should be specified at a level that is relatively satisfactory to an executive. More emphasis should be placed on the compensation paid in the form of rewards and the spiritual incentives for executives.

Last but not least, mutual supervision [67] [68]. This paper expounds it from the perspective of stakeholders. A. Mutual supervision between major shareholders and minority shareholders in shareholder governance. In the case of excessive equity concentration, if the interests of the major shareholders and minority shareholders are inconsistent, the major shareholders may damage the interests of the minority shareholders for their own interests, thereby reducing the bank's operating performance. On the contrary, if the ownership structure is extremely dispersed, the interests of bank managers and shareholders cannot be consistent. The minority shareholders have no ability and no incentive to supervise the agents. And it means that the senior management is inclined to make risky decisions that are not conducive to bank development, thereby reducing the bank's operating performance. B. In creditor governance, there are “free riders” in the supervision of banks by small and medium-sized depositors. The creditors lack sufficient motivation to directly participate in bank governance. To compensate for this shortcoming, independent bank directors and government regulatory authorities replace the creditors to exercise the functions of supervising commercial banks. It improves the governance of commercial banks and business performance. C. The independent director does not have any significant interest relationship with the company and the major shareholders. When the major shareholder or the senior manager has a conflict with the company, the independent director can solve the conflict through coordination. It can help realize the maximum of the bank’s benefits. D. The senior managers are the ultimate agents. They can directly affect the bank's business performance. However, for the employees of banks, their participation in corporate governance is to join in the board of supervisors through the election, which indirectly affects the bank's operating performance.

Figure 2：The impact path of bank governance on bank competitiveness

Point 7: Do political ties impact performance and ratings?

Response 7: Thanks for the suggestion. We rewrite this part to deepen the discussion.

The political ties between business and government will also affect the competitiveness of banks. Banks provide loans and conduct business to non-political ties companies in accordance with market principles [54][55]. For political ties companies, government officials have greater control or influence on bank credit decisions [56][57]. These companies can obtain loans through non-marketing political ties rather than their own strength, which has changed the efficiency of the financial resources allocation. The efficiency may increase. When banks pursue short-term benefits, they will offer more loans to companies with much environmental pollution rather than to environmentally friendly companies. Then good policy guidance may force banks to increase the loans to enterprises that contribute to sustainable development. Therefore, political ties may bring about an increase in the resource allocation efficiency. On the other hand, if banks lack post-supervision of bank loans to political relations companies [58][59], those companies will have the incentive to make use of the lack of supervision and regard banks as “cash machines”. In this case, it reduces the efficiency of resource allocation and lowers the competitiveness of banks.

Point 8: You need to clearly list your findings. For example, what are the weightings of your factors? Why some factors are more important in your setting? Would they change when you use them elsewhere? If one bank ranked low, what’s the implication to the bank, regulator, and the public? How to improve the ranking? For example, is it useful to put the incentive in compensation contract? See Hong, B., Li, F., Minor, D., 2016, Corporate Governance and Executive Compensation for Corporate Social Responsibility, Journal of Business Ethics, June, 136 (1): 199-213 and Bizjak et al. 2018, Selection of Peer Firms in Relative Performance Evaluation (RPE) Awards.

Response 8: Thanks for the suggestion. According to your suggestion, we have revised the following content in the conclusion and prospect.

By the entropy weight method, the results showed that profitability accounted for 34.79%, green index 18.34%, liquidity 16.82%, capital adequacy 14.22%, asset quality 10.87%. The sensitivity to market risk is 3.6%, and the level of management quality is 1.37%. We can see that the profitability accounts for the largest proportion, which is in line with the reality. People often use financial statements to understand the business status of banks, and the financial statements can directly reflect the profitability of banks. The better the banks operate performance, the stronger the bank competitiveness is. The green index is second only to profitability in the empowerment, which shows the policy orientation, the enhancement of the implementation of green financial policy, and the realization of sustainable development. The weight of this paper is in line with China's national conditions. The sample selection covers all types of domestic listed banks, so it can be used for the comparison of domestic banks' competitiveness. But for other countries, the weight of each indicator may be different due to the change of environment. Specific analysis should be made on a case-by-case basis. For the public, they can choose banks to save or invest according to the ranking of bank competitiveness. The public may be more inclined to choose the top banks because they perform well in terms of security, profitability, liquidity and sustainability. For banks, the public choice of these banks has an incentive effect on other banks. Therefore, it promotes the sustainable development of the entire banking industry. There are many local banks in China, and local banks are rushing into other areas in order to expand their size. So local governments can selectively accept or reject banks to establish branches to expand their scale, according to their rankings. This ranking also provides a realistic basis for regulators to formulate financial policies.

So how do commercial banks improve their competitiveness?

Under the premise of ensuring safety, state-owned banks should innovate their profit models and find new profit growth points. Compared with the intermediate business of some joint-stock banks, state-owned banks have poor product innovation, fewer types of products, and worse profitability. Therefore, the state-owned commercial banks should substantially increase the proportion of intermediary business income to total revenue, improve the intermediate business organization system and mechanism, and strengthen the management of the intermediary business; make full use of all resources and advantages to strengthen technological innovation and process integration, promote the research and development of new products and the upgrading of old products. Strengthen marketing and perfect marketing mode. Make full use of the advantages of state-owned banks in capital, institutions, networks, information, technology and brands, implement an integrated marketing strategy, and implement a marketing model of customer managers, product managers and counter-marketing. Promote the development of various intermediary business linkages. The positive interaction between the intermediary business and the asset-liability business, and achieve the integrated business objectives of the intermediary business. At the same time of implementing salary incentives, we must further organize business competitions, formulate a reasonable reward and punishment mechanism, mobilize employees' work enthusiasm; commercial banks should maintain moderate asset expansion speed. Banks need to appropriately control the scale of assets, improve the efficiency of capital operation, and avoid value-damaging acquisitions to blindly expand the scale. In order to strengthen the internal governance and control of the bank, the proportion of shares held by the state should be appropriately reduced. It is beneficial to professional managers to play a management role in the daily activities and improve the business performance. Optimize the internal governance structure, change the power structure, and incorporate creditors and employees. Distribute the voting rights among shareholders, creditors and employees to weaken the principal-agent relationship among other stakeholders and shareholders, and protect all stakeholders’ interests. For example, the power of commercial banks can be dispersed among various stakeholders and peers. Improve service levels and quality, and improve customer satisfaction. Establishing a good salary incentive mechanism requires employees and senior executives to be linked to performance. It is also necessary to combine short-term incentives with long-term incentives to minimize the short-sighted behavior of bank decisions. Bank members are vulnerable to salary incentives and simply pursue high bank returns. Therefore, banks should link compensation to risks and performance. The banks can try to delay payment of executive compensation according to risk exposure time and risk type. It not only makes the compensation system reflect the current profits and risks, but also reflects the potential losses and risks in the future. Optimize the salary performance assessment method and listen widely to different opinions on salary arrangements. Improve the transparency of the salary arrangement. In addition, the G-CAMELS system, which has joined the green indicator, has improved the competitiveness of state-owned banks as a whole. The reason for the improvement of the competitiveness of state-owned banks is that they can meet the policy requirements of bank transformation, shorten the transition period, adjust the business structure in time, control potential risk, and enrich the original business, with the whole target of banks by virtue of their good reputation, strong capital strength, and ability to resist risks. Therefore, state-owned banks should continue to implement the green credit policy respond to the call of national policies, accelerate economic transformation, and promote sustainable development.

Joint-stock commercial banks should continue to expand their advantages in asset quality and profitability, as well as improve the supervision of capital adequacy and market risk. Capital adequacy is determined by the proportion of the bank's own capital and risk assets. Clearing up non-performing loans can reduce the ratio of non-performing assets and improve the quality of assets. Reducing the total amount of risky assets can moderately reduce the proportion of credit assets, and constantly improve the proportion of investment and financing assets. It aims to increase their own capital and reduce risk assets to increase the capital adequacy of banks. Banks can also improve capital adequacy by restructuring risky assets. The equity of small and medium-sized commercial banks should be properly concentrated. Since the equity structure of smaller banks is relatively dispersed, equity concentration ensures that the largest shareholder has a controlling stake and that the legal rights and interests of other shareholders in the bank are protected. To strengthen the supervisory function of the board of supervisors, we must first increase the entry threshold of the members of supervisors; secondly, we must strengthen supervision over the board of supervisors and achieve effective combination of pre-supervision, in-process supervision and post-supervision supervision. Promote the reform of the bank's property rights system and form a diversified property rights structure. The introduction of foreign capital and private capital can not only expand the bank's capital, but also achieve the effect of optimizing the shareholding structure and corporate governance structure. On the other hand, with the globalization process and the increasing degree of marketization in China, the risks faced by banks are also increasing. Joint-stock banks should strengthen risk management and the training of professionals involved in risk control to ensure the stability of China's financial system. They should also actively cooperate with the financial supervision department, prepare for risk prevention.

Given the late start-up, small asset scale, and strong regional dependence, the city commercial banks have been facing a severe test. For most city commercial banks, the green financial policy undoubtedly increases their operational pressure. Therefore, to ensure their good operation under the premise of gradual transformation, the state can moderately reduce the implementation standards for green financial policies of city commercial banks. Additionally, urban commercial banks should be encouraged to develop innovative businesses and to practice social responsibility while making profits. Related measures can be found in the recommendations given to state-owned banks and joint-stock banks.

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