On The Relationship Between Interest Rate Policy And The Internal Disposal Of Non-performing Assets In Chinese Commercial Banks

Thanks to the reform of banking since 1994, commercial banks of all kinds in China have grown stronger and the domestic financial system is also developing toward the direction of market-orientation. Particularly, since the entrance into WTO in 2001, banking system at home expects its complete openness in late 2006. As a result, commercial banks are urgent to improve their competitive power because of the constant innovation of banking system at home and the great pressure brought about by foreign banks. However, great sum of non-performing asset, as well as a surprising high ratio of it, poses as a great obstacle for the improvement of commercial banks. Therefore, it is quite essential to make a research on the root of non-performing assets and the possible ways to deal with it.The present thesis bases itself on the logic relation between domestic interest policy and the resolution of non-performing assets. It firstly will make an illustration on the current situation for commercial banks at home: large sum of non-performing assets, surprisingly high ratio and great difficulty in dealing with it. Then it will examine the relationship between interest policy and the non-performing asset formation, focusing on the relevant influencing factors. After that, this thesis will analyze the impact caused by fluctuation of interest rate on non-performing asset, and the ways in which banks cope with this problem. Here it is going to point out that the inappropriate gap between deposit and loan interest rate may greatly prevent the effective disposal by banks themselves. Lastly is the conclusion. The constructive proposals for prospective policy making from the research are shown as follows: first, maintain a relatively low interest rate for deposit, while stabilizing loan interest rate. To retain a rather stable gap between deposit and loan interest rate will serve as an effective measure for coping with non-performing assets;second, hold a reasonable goal for interest rate policy;third, make full use of interest tax to deal with non-performing assets. It is unwise to hastily call off interest tax, which is an important instrument in dealing with non-performing assets;fourth, reduce appropriately the overall interest rate by gradually canceling interest tax of collection item;fifth, raise deposit interest rate and keep a reasonable gap between deposit and loan interest rate, which could guarantee banks' interest;sixth, reduce the overall interest rate;seventh, make interest rate market-oriented by establishing a good management system;eighth, improve the institution of granting loans and accepting deposits to avoid the formation of non-performing assets in a similar way.