Research On Influencing Factors Of Chinese Banking Interest Pricing Based On The Dual-track System Of Interest Rates

The reform of interest rate marketization is an important means to change the allocation of financial resources by government to market in China.Since the mid-1990 s,the leaders of the reform have taken gradual,steady and phased steps of reform.By 2015,the cap on the interest rate on RMB deposits had been abolished,and the reform of interest rate marketization had achieved important milestones.However,considering financial risk,regulatory restrictions on deposit and loan interest rates still exist.Interest rate marketization has been in a dual-track stage.The objective of interest rate marketization reform is to truly allocate financial resources in accordance with market rate and hand over the pricing of interest rates to financial institutions and market.The banking sector is impacted most significantly by this reform,as the ability to pricing interest rates in accordance with market rates directly related to the survival and development of banks in the marketed interest rate environment.Therefore,the research of the pricing of bank interest rates will contribute to the success of interest rate marketization reform.Although there is a general consensus among the academic circles and the banking industry on the above mentioned direction of reform,there is a lack of in-depth,comprehensive and systematic research on interest rate pricing in China's banking sector in the dual-track interest rate system.This paper studies the interest rate pricing of commercial banks in the dual-track interest rate system in China.The main research work of this paper is as follows: firstly to summarize the theoretical foundations and related literature of interest rate pricing,and constructs the research basis and logical framework of this research paper;Secondly to analyze the influence of the on-going reform of interest rate marketization as well as the impact of interest rate marketization reform on commercial banks pricing in the United States and in China respectively.Then from the fourth chapter to the sixth chapter,the Chinese banks' pricing decision mechanism of loan,deposit,and internal transfer rate are analyzed,and the core influencing factors that influence the pricing practices are studied.Last to summarize this paper and discusses further research works.The main conclusions of this paper are as follows:(a)in the process of interest rate marketization reform,the influence upon China's commercial banks of interest rate marketization is different from that the United States and other countries.(b)The degree of interest rate marketization,deposit interest rate,operating cost,interest rate risk and other factors are the most significant factors impacting loan interest rate,and interest rate marketization has significantly enhanced the transmission efficiency of bank capital cost,which is beneficial to improve the bank's ability of pricing loan interest rate independently.This research paper also reveals that there are differences in the factors influencing the pricing of loan rate by different types of banks in China.(c)The degree of marketization of interest rates,capital adequacy ratio and bank size are most significant factors impacting deposit interest rates.Non-state-owned banks are subject to a greater degree of heterogeneity,such as capital adequacy ratio and asset size,and are under greater pressure than state-owned banks when making deposit rate adjustments in accordance with market rate.(d)In the on-going process of interest rate marketization reform,the influence of market interest rate on the internal pricing of commercial banks remains stable,the influence of long-term treasury interest rate on the internal pricing of banks is becoming stronger,and the pricing effect of loan interest rate on FTP is becoming weaker.The decision of FTP of large commercial banks not only affects the banks' own business behavior,it also affects the operational efficiency of the financial system as a whole.The innovative points of this paper are in the following four aspects:(a)based on the reality of interest rate marketization reform in China,this paper makes a comprehensive and systematic study on external pricing and internal pricing.(b)This paper constructs the three business units' model of commercial banks.In the process of analysis,the correlation between deposit pricing,loan pricing and internal pricing is fully considered,and the intrinsic relationship of bank pricing system is empirically demonstrated.(c)This paper studies the internal pricing through empirical and game theory,enriches the research methods of internal pricing,and makes up the lack of quantitative research.(d)Based on the banking industry as the research object,this paper further expands the model and makes a comparative analysis of the different types of banks.Through empirical analysis,different types of banks are not the same as the impact of the core factors,indicating that different banks in response to interest rate marketization reform should adopt different business strategies.This paper presents policy recommendations from three perspectives:(a)The Central Bank should focus on cultivating and forming policy interest rates with the objective to replace the set deposit and loan rates with market rates.It should seek to construct a more complete yield curve to better represent market risk free rates,and based on which,to build mid and longer term interest rate pricing mechanism.It should further attach great importance to construct a more complete financial market by increasing direct investment and broadening financing channels.(b)For the banking regulatory authority,it is proposed to strengthen the hard constraints of banking supervision and to guard against financial risks in the process of marketization reform.It should focus on strengthening capital adequacy management,eliminating the "quantitative" target of deposit and loan requirements,phasing out the business practice of chasing bigger scale only,and embracing stronger and more stable banking business models.It should keep cultivating the interest rate pricing capabilities of commercial banks.(c)From the perspective of commercial banks,they are strongly suggested to strengthen the construction of internal capabilities of pricing deposit and loan rates properly,reduce operating costs,and improve the risk management capabilities.