Study On The Factors That Impact Commercial Banks' Net Interest Margin In China

Over the past three decades, China's banking industry had changed dramatically from mono-bank system in planned economy to competitive market economy, nowadays prosperous commercial banks in various regions bring about ordered and competitive banking industry developing pattern. Under this circumstance, a number of researchers compare the earning mode of domestic banking with that of foreign developed banks, measuring the ratio of intermediary income to the profit as the only development index, then give suggestions that domestic banks should set foreign banks as example to improve the intermediary income and lower the weight of net interest income. According to the current situation of Chinese financial markets, products and consumption level, Chinese banks don't have the conditions to earn more on intermediary income, and partially emphasis on the increase of intermediary income is less actual, instead, how to cement the net interest income looks more feasible. This paper aims to explore the factors impact the net interest margin (NIM) to improve it further, which is helpful for commercial banks' healthy, sustainable and stable development. Besides, in light of the interest rate risk that derives from the interest rate adjustments, this paper discusses the relationship between them.The first chapter states the research background, aims and significance, discusses that intermediary income counts much less than the net interest income, which indicates the current task is to rise the latter, instead of blindly improve the former. Then this paper makes comparisons between domestic and foreign literatures on the factors affecting NIM, despite of the differences of the methodologies and factors, more generally, these factors focus on micro to macroeconomics, last, this chapter briefly states the methodology, contents, and the creative points as well as parts need to be improved.In the second chapter, this paper explores the factors under such assumptions and theoretical analysis, after that is the empirical analysis with the annual panel data from 1994 to 2008, which gets the factors ranging from micro-economy to macro-economy. Additionally, interest rate risk is among these factors.Chapter 3 explores interest rate risk further on the basis of the second chapter, firstly there are some assumptions to simplify the real world, then risk models are structured to connect NIM with interest-rate-risk-related Macaulay Duration, next, the relationship between NIM and interest rate movements is analyzed with the static and dynamic stochastic simulation, aiming to find how much interest rate change can domestic banks withstand, whether the interest rate change is relative dramatic or not. The test of interest rate risk is helpful to see whether the interest rate adjustments can lead to unacceptable effect within a wider range, which contributes to the policy maker to maintain the stability of financial system.In chapter 4, this paper summarizes the results and gives some suggestions on policy making, these suggestions not only concentrate on banks, banking system but macro-economy, like more focus on traditional business than intermediary ones, proper investments, performance improvement, solid risk management, use of advantages in banking industry and the trend of macro-economy.Chapter 5 reviews the research and analysis, the main innovations lie to the newly established integrated analysis models having excellent performance, the use of new data, variables which are explored less before. Still, this paper analyzes the NIM and interest rate adjustments with simulation method. Indeed, this paper has much to improve, such as the missing data, complexity of real world and methodology. Creative points should be continued and shortcomings must be revised. From a comprehensively perspective, the factors affecting NIM as well as interest rate risks should be discussed further.