| China's interest rate liberalization reform, launched in 1996, has adopted a dual-track gradual model which started from liberalizing the interest rates in money market and bond market, to the loan interest rates in the financial institutions and the eventually the deposit interest rates in the financial institutions. So far, China has basically achieved the liberalization of interest rates in money market and bond market, the saving and loan interest rates of foreign currency and the loan interest rates in financial institutions. Since 2015, the central bank has further loosened the cap on deposit interest rates and established the saving insurance system, heralding the impending final liberalization of deposit interest rates. In the process of future interest rates liberalization, China needs to accomplish several major tasks including the transition from regulated interest rates to liberalized interest rates, the enhancement of the risk pricing capability of the commercial banks, the establishment of benchmark interest rates curves, and the improvement of interest rate regulation system, etc. While Chinese commercial banks have been expanding in size continuously, problems also surfaced in many aspects, including the extensive operational types, and the interest rates spread-centered business structure. As the interest rates liberalization moves on, the commercial banks challenged by the narrowing interest rate spread, the expanding interest rate risks, and the increasing difficulty in loan pricing and so on, are badly in high need of sound risk-measurement and management systems. Therefore, this dissertation is of great significance both theoretically and practically.The dissertation studies the risk management of Chinese commercial banks under the condition of interest rate liberalization. It starts from illustrating the key theoretical and practical significance of the study based on the expanding sizes of Chinese commercial banks, the speeding promotion of deposit and loan rate interest rate liberalization and the increasing floatation of market interest rates, and defining several key terms such as interest rate regulation, interest rate risks, and interest rate liberalization. Then, the dissertation analyses and summarizes the interest rate liberalization experiences of America, Japan and South Korea, combs China's preliminary reforms in interest rate liberalization, and points out the tasks for future interest rate liberalization reforms and conducts a profound analysis of the impact of interest rate liberalization on Chinese commercial banks. The third part compares the current interest rate risk measuring models and selects the appropriate one to apply in the measurement of the risks of Chinese commercial banks. The fourth part holds that loan pricing capability will become a core competitive edge for a bank after the liberalization of interest rates and the scientific FTP system and loan pricing methods will be a precondition. Based on these views combined with the existing problems in interest rates risk management in China, the dissertation goes on to propose an interest rate risk management approaches. Finally, the paper, from the perspective of the commercial banks, suggests some effective solutions to address the interest rates risks in the liberalization of interest rates. Specifically, the paper has six chapters.Chapter One is the foreword. At the very beginning, it briefs the backgrounds and significance for choosing the subject and defining the key terms including interest rates regulation, interest rates risks, and interest rate liberalization. Then, it introduces the structure, the major content and the research methods of the dissertation. Finally, the chapter points out the innovation, weakness of the dissertation and the direction for future researches.Chapter Two is the literature review which sums up the existing researches into interest rate liberalization and interest rate risks into three categories:the first category mainly studies the theoretical bases and the influence of interest rate liberalization on commercial banks; the second category explores the measurement and identification methods of interest rate risks, the origin and significance of VaR model; the third category is about the domestic researches in interest rate risks in interest rate liberalization. The chapter analyses each category thoroughly and evaluates its weaknesses and strength. The method to apply the VaR model in market risks measurement provides a key reference for this dissertation.Chapter Three reviews the process of interest rate liberalization and its influence. Based on the overview of related researches at home and abroad, this chapter will first introduce the interest rate liberalization experience of the US, Japan and South Korea and finds out some inspiration for China's interest rate liberalization. Then, it combs the preliminary progress of China's interest rate liberalization between 1996 and 2015, and advises tasks for future reforms. After that, this chapter conducts a comprehensive analysis of the influence of interest rate liberalization on Chinese commercial banks in three aspects including deposit and loan rates, operational models and interest rate risks to lay a foundation for the research into Chinese commercial banks'risk measurement and management in the following chapters.Chapter Four revolves around interest rate risk measurement of Chinese commercial banks. In this chapter, interest rate risks of the commercial banks are divided into four types according to international standards:benchmark risks, re-pricing risks, return rate curve risks and options risks. The chapter introduces and compares the four models, namely the interest rate sensitivity gap model, the duration gap model, the Mont Carlo Simulation analysis and the VaR model, and chooses the VaR model as the theoretical tool to analyze the overnight interbank interest rate between 2012 and 2014, and conducts statistical verification of the logarithmic return rate of the overnight interbank interest rate and estimates the VaR based on the GARCH model.Chapter Five explores the interest rate risk management of Chinese commercial banks. At the beginning of this chapter, the author analyses the existing problems of China's current interest rate risk management, such as the flawed interest rate pricing system and the weak regulation of interest rate risk and liquidity risk. Based on the analysis, the author will mainly introduce how to establish the FTP system as the basis of loan pricing, including the steps and the key parts for the establishment of FTP system, and describes the respective FTP pricing methods under the money model and term match model by citing to the interest rate risk management practices of oversea advanced banks. On the other hand the author explain in detail the loan pricing after the interest rates liberalization including major principles and procedures of loan pricing, and explores the practical application of the Cost Plus model in China.Chapter Six presents the conclusion and solutions. This chapter, based on the overall research framework, summarizes the process and influence of the interest rate liberalization, the interest rate risk measurement of Chinese commercial banks and the interest rate management of Chinese commercial banks, and then provides some suggestions from the perspective of asset and debt management. The first suggestion is to strengthen the balance-sheet management including the interest rate spread management, gap management, term management, the management of financial derivatives and the financial business innovation. The second suggestion is to carry out balance sheet adjustment in aspects like loan portfolio, deposit portfolio, investment portfolio, borrowed money, and bond innovation. The third suggestion is to conduct off balance sheet adjustment by relying on financial derivatives and financial innovations to shun interest rate risks.Compared with other papers, the dissertation mainly has the following three innovations.The first lies in the depiction of the path of China's interest rate liberalization, the exploration of the major tasks for future interest rate reforms based on international experience in this regard and the comprehensive analysis of the key impacts of interest rate liberalization on Chinese commercial banks, including the impact on deposit rates, loan rates and differentials, the impact on loan investment, debt structures and business structures, and the impact on interest rate risks (which mainly lies in the preference rise of risks of the commercial banks, the increase of risks, and the rising difficulty in loan pricing.).The second is the comparison of the popular interest rate risk measurement models. Based on the comparison, the paper chooses the VaR model that is more compatible with China's market situation, applies the model into the empirical research of the overnight interbank interest rate (Shibor), and establishes the GARCH model. The comparison of the evaluation results of GARCH, EGARCH and PARCH, indicates that the EGARCH(1,1) is most effective and the maximum VaR obtained from the EGARCH model concentrates in the beginning of 2013 and 2014,which means the potential interest rate risks are prominent in these two periods.Third, when the interest rates are all liberalized, the loan pricing will become the core competitiveness for the commercial banks. To establish efficient loan pricing system, the banks must have a sound FTP system and acquire loan pricing methods. The paper, in the regard of the weakness of interest rate risk management, discusses how to establish the FTP system-the basis for loan pricing, including the steps and key elements for the establishment of the FTP system while analyses in detail the loan pricing under the context of liberalized interest rates, including major methods and procedures for loan pricing. |
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