The Empirical Study On The Determinants Of Net Interest Margin In The Chinese Banking System

Net interest margin reflects the profitability of commercial banks, although higher of it is not benefit for development of banks and macroeconomic controlling of government. The moderate net interest margin makes banks more efficient and stable; and it also promotes economic development and makes welfare maximization. The determinants of net interest margin are disputed by researchers for a long time, but analyzing its determinants will help banks a lot. The literatures on net interest margin are mostly focus on developed countries, and less frequent analyzed in long-term and short-term view. Therefore, this paper analyzes the determinants of net interest margin in Chinese banking system over the period 1999-2007, corresponding to 21 commercial banks, considering operational cost, diversity and specialization of banks and analyzes their changes before and after the interest rate reform in 2004.The results show that, the current values of net interest margin may be determined by their previous value; the determinants of net interest margin includes operational cost, default risk, risk aversion, implicit interest payment, opportunity cost of holding liquid reserves, quality of management, scale, specialization and diversity variables; the most significant economic impact on net interest margin is determined by operating cost, quality of management, scale, and their long-term elasticity are higher than those of short term; operational cost, default risk and scale have positive influence on net interest margin significantly; there is a negative and significant relationship between the loan ratio and net interest margin; the diversity variable has negative influence on net interest margin significantly, but its economic impact is low; market competition structure is not always has positive and significant influence on net interest margin; and marketable interest rate reform of Chinese banking is efficiency especially the strategy in 2004.Based on the findings above, this paper makes some suggestion:①Improve bank pricing ability of interest rate;②E nhance policy and government regulation;③Strength risk management of commercial banks;④Different types of banks should improve their shortage, such as state-owned commercial banks should focus on improving corporate structure, enhancing risk management.